18-1

Question 2. Compute its contribution margin per unit and its contribution margin ratio.

The following costs result from the production and sale of 5,000 drum sets manufactured by Tight Drums Company for the year ended December 31, 2017. The drum sets sell for $350 each. The company has a 25% income tax rate.

Variable production costs
Plastic for casing	$	185,000
Wages of assembly workers		510,000
Drum stands		230,000
Variable selling costs
Sales commissions		175,000
Fixed manufacturing costs
Taxes on factory		5,000
Factory maintenance		10,000
Factory machinery depreciation		70,000
Fixed selling and administrative costs
Lease of equipment for sales staff		10,000
Accounting staff salaries		60,000
Administrative management salaries		140,000	2. Compute its contribution margin per unit and its contribution margin ratio. (Round Contribution margin ratio to nearest whole percentage.) TIGHT DRUMS COMPANY Contribution Margin Income Statement (partial) For Year Ended December 31, 2017 Per Unit Sales $37 Variable costs: Plastic for casing 185,000 Wages of assembly workers 510,000 Drum stands 230,000 Sales commissions 175,000 Total variable costs 1,100,000 Contribution margin $130 Contribution Margin Ratio Sales $37 100% Variable costs 1,100,000 Contribution margin $130