MGMT 312,VI.Module 4 Review QuestionsContribution margin income statement and contribution margin ratioThe following cos...

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MGMT 312-Contribution margin income statement and contribution margin

April 14, 2018

MGMT 312,
VI.

Module 4 Review Questions

Contribution margin income statement and contribution margin ratio

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, 2013. The drum sets sell for $250 each.
The company has a 25% income tax rate.

1) Prepare a contribution margin income statement for the company.
2) Compute its contribution margin per unit and its contribution margin ratio.

Page 1 of 3

MGMT 312,
VII.

Module 4 Review Questions

Break-even analysis, different cost structures, and income calculations

Letter Co. produces and sells two products, T and O. It manufactures these products in
separate factories and markets them through different channels. They have no shared
costs. This year, the company sold 50,000 units of each product. Sales and costs for
each product follow.

1) Compute the break-even point in dollar sales for each product.
2) Assume that the company expects sales of each product to decline to 33,000
units next year with no change in unit sales price. Prepare forecasted financial
results for next year following the format of the contribution margin income
statement as shown with columns for each of the two products (assume 32% tax
rate). Also, assume that any loss before taxes yields a 32% tax savings.
3) Assume that the company expects sales of each product to increase to 64,000
units next year with no change in unit sales price. Prepare forecasted financial
results for next year following the format of the contribution margin income
statement shown with columns for each of the two products. (Assume a 32% tax
rate.)

Page 2 of 3

MGMT 312,
VIII.

Module 4 Review Questions

Cost behavior estimation – high-low method

The following information is available for a company’s maintenance cost over the last
seven months.

1) Using the high-low method, estimate both the fixed and variable components of
its maintenance cost.
2) Show the cost function formula for monthly maintenance costs.

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