The following costs result from the production and sale of 4,000 drum sets manufactured by Vince Drum Company for the year ended December 31, 2011. The drum sets sell for $250 each. The company has a 25% income tax rate.
| Variable production costs | |
| Plastic for casing | 68,000 |
| Wages of assembly workers | 328,000 |
| Drum stands | 104,000 |
| Variable selling costs | |
| Sales commissions | 60,000 |
| Fixed manufacturing costs | |
| Taxes on factory | 10,000 |
| Factory maintenance | 20,000 |
| Factory machinery depreciation | 80,000 |
| Fixed selling administrative costs | |
| Lease of equipment for sales staff | 20,000 |
| Accounting staff salaries | 70,000 |
| Administrative management salaries | 150,000 |
Required
1. Prepare a contribution margin income statement for the company
2. Compute its contribution margin per unit and contribution margin ratio.
3. Interpret the contribution margin ratio from part 2.
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