Question

Hudson Co. reports the contribution margin income statement for 2015.HUDSON CO.Contribution Margin Income StatementFor Year Ended December 31, 2015Sales (9,600 units at $225 each) $ 2,160,000 Variable costs (9,600 units at $180 each) 1,728,000 Contribution margin $ 432,000 Fixed costs 324,000 Pretax income $ 108,000 If the company raises its selling price to $240 per unit.1. Compute Hudson Co.'s contribution margin per unit.2. Compute Hudson Co.'s contribution margin ratio.3. Compute Hudson Co.'s break-even point in units.4. Compute Hudson Co.'s break-even point in sales dollars.

Answer 1

Answer:

1) $45

2) 0.2 or 20%

3) BEP units: 7,200

4) BEP dolars 1,620,000

Explanation:

225 sales revenues - 180 variable cost = 45 margin per unit

contribution margin ratio:

margin per unit / sales revenue per unit

45 / 225 = 0.2

break even:

$\frac{Fixed\:Cost}{Contribution \:Margin} = Break\: Even\: Point_{units}$

324,000 / 45 = 7,200 units

$\frac{Fixed\:Cost}{Contribution \:Margin \:Ratio} = Break\: Even\: Point_{dollars}$

342,000 / 0.2 = 1,620,000