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### Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

# The following costs result from the production and sale of 12,000 CD sets manufactured by Gilmore Company for the year ended December 31, 2017. The CD sets sell for $18 each. The company has a 25% income tax rate.Variable manufacturing costs Plastic for CD Sets$1,500 Wages of assembly workers30,000 Labelling3,000Variable selling cost Sales commission6,000Fixed manufacturing cost Rent on factory6,750 Factory cleaning services4,520 Factory machine depreciation20,000Fixed selling and administrative cost Lease of office equipment1,050 System staff salaries15,000 Administrative management salaries120,000Required 1. Prepare a contribution margin income statement for the company. 2. Compute its contribution margin per unit and its contribution margin ratio. Analysis Component 3. Interpret the contribution margin and contribution margin ratio from part 2.

1. The business entity is generating a net income of $6,135. 2. Contribution margin per unit:$14.625, contribution margin ratio: 0.8125.

## Step 4: Interpretation of contribution margin per unit and ratio

The contribution margin per unit reflects that the sale of each unit generates \$14.625 to cover the fixed cost of the business entity.

The contribution margin ratio reflects that 81.25% of total sales is available to cover the company’s fixed costs.

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