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Hudson Co. reports the contribution margin income statement for 2019.
HUDSON CO.
Contribution Margin Income Statement
For Year Ended December 31, 2019
Sales (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
1. Assume Hudson Co. has a target pretax income of $162,000 for 2020. What amount of sales in dollars) is needed to produce this target income?
2. If Hudson achieves its target pretax income for 2020, what is its margin of safety (in percent)? (Round your answer to 1 decimal place.)
1. Amount of sales
2. Margin of safety
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. per unit
1. Contribution margin
2. Contribution margin ratio
3. Break-even point
4. Break-even sales dollars units
The marketing manager believes that increasing advertising costs by $81,000 in 2020 will increase the company's sales volume to 11,000 units. Prepare a forecasted contribution margin income statement for 2020 assuming the company incurs the additional advertising costs. HUDSON CO. Forecasted Contribution Margin Income Statement For Year Ended December 31, 2020 Sales Variable costs Contribution margin Fixed costs Income (pretaxy Loss Should the company incur the additional advertising costs?

Answer 1

Answer:

Hudson Co.

1. Amount of sales dollars

= $2,430,000

2. Margin of safety (in percent)

= 33%

3-1) Contribution margin per unit = $45

2) Contribution margin ratio = 20%

3) Break-even point in units = 7,200 units

4) Break-even point in sales dollars = $1,620,000  $255

Explanation:

a) Data and Calculations:

HUDSON CO.

Contribution Margin Income Statement

For Year Ended December 31, 2019

Sales (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

Contribution margin per unit = $45 ($432,000/9,600)

Contribution margin ratio = 20% ($45/$225 * 100)

Break-even point in units = 7,200 ($324,000/$45)

Break-even point in sales dollars = $1,620,000 ($324,000/0.20) $255

1. With target pretax income of $162,000:

Amount of sales dollars = (Fixed cost + Target profit)/Contribution margin ratio

= $2,430,000 ($324,000 + $162,000)/0.20

2. Margin of safety (in percent)

1. Amount of sales = $2,430,000

2. Margin of safety = $810,000 ($2,430,000 - $1,620,000)

Margin of safety in percentage = 33% ($810,000/$2,430,000 * 100)