Assignment: The following costs result from the production and sale of 2,000 drums sets manufactured by Harris Drum Company for the year ended December 31, 2009. The drum sets sell for $500 each. The company has a 25% income tax rate.
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Harris Drum Company
Contribution Margin Income Statement
For Year Ended December 31, 2009
(2,000 units) Per unit % of sales
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Sales ($500 x 2,000)............
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$1,000,000
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$500.00
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100%
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Variable costs
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Plastic for casing..............
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$ 34,600
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$17.30
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Assembly worker wages......
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164,000
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82.00
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Drum stands.....................
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52,000
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26.00
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Sales commissions...........
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30,000
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388,800
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0.10
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1.62
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18%
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Contribution margin............
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1,771,200
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$7.38
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82%
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Fixed costs
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Taxes on factory...................
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10,000
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Factory maintenance....... as
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20,000
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Factory mach. depreciation.....................................................
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80,000
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Staff equipment lease..........
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20,000
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Accounting staff salaries....
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70,000
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Admin. mgmt. salaries.........
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250,000
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450,000
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Pretax income..........................
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451,200
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Income tax (25%).....................
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112,800
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Net income................................
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$ 338,400
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Part 1. Prepare a contribution margin income statement for the company.
Part 2. Compute its contribution margin per unit and its contribution margin ratio.
Part 3 Analysis Component
Contribution margin shows how much of total sales are available to cover fixed costs and contribute to operating income. This is why the title for this statement is “Contribution Margin Income Statement.” Contribution margin ratio shows management the percent of each sales dollar that is available to cover fixed costs and to contribute to operating income. That is, for each $1 of sales, $0.82 is available both to cover fixed costs and to contribute to operating income.