Problem 21-1A Contribution margin income statement and contribution margin ratio A1

The following costs result from the production and sale of 1,000 drum sets manufactured by Tight Drums Company for the year ended December 31, 2019. The drum sets sell for $500 each. The company has a 25% income tax rate.

Required

1.Prepare a contribution margin income statement for the year.

Check(1) Net income, $101,250

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

Analysis Component

3.For each dollar of sales, how much is left to cover fixed costs and contribute to operating income?

Problem 21-2A Cost behavior estimation—high-low P1

Alden Co.’s monthly unit sales and total cost data for its operating activities of the past year follow. Management wants to use these data to predict future fixed and variable costs.

Required

1.Estimate both the variable costs per unit and the total monthly fixed costs using the high-low method.

2.Use the results from part 1 to predict future total costs when sales volume is (a) 200,000 units and (b) 300,000 units.

Problem 21-3A Break-even analysis P2 P3

Page 806Praveen Co. manufactures and markets a number of rope products. Management is considering the future of Product XT, a special rope for hang gliding, that has not been as profitable as planned. Since Product XT is manufactured and marketed independently of the other products, its total costs can be precisely measured. Next year’s plans call for a $200 selling price per 100 yards of XT rope. Its fixed costs for the year are expected to be $270,000, up to a maximum capacity of 700,000 yards of rope. Forecasted variable costs are $140 per 100 yards of XT rope.

Required

1.Estimate Product XT’s break-even point in terms of (a) sales units and (b) sales dollars.

Check(1a) Break-even sales, 4,500 units

2.Prepare a contribution margin income statement showing sales, variable costs, and fixed costs for Product XT at the break-even point.