Hudson Co. reports the contribution margin income statement for 2017. HUDSON CO. Contribution Margin Income Statement...

Hudson Co. reports the contribution margin income statement for 2017.

HUDSON CO.
Contribution Margin Income Statement
For Year Ended December 31, 2017
Sales (9,900 units at $225 each)	$	2,227,500
Variable costs (9,900 units at $180 each)		1,782,000
Contribution margin	$	445,500
Fixed costs		342,000
Pretax income	$	103,500

Assume the company is considering investing in a new machine that will increase its fixed costs by $42,000 per year and decrease its variable costs by $9 per unit. Prepare a forecasted contribution margin income statement for 2018 assuming the company purchases this machine.

HUDSON CO.
Forecasted Contribution Margin Income Statement
For Year Ended December 31, 2018
Sales
Variable costs
Contribution margin	0
Fixed costs
Income (pretax)	$0
Should the company purchase the machine?

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.

The marketing manager believes that increasing advertising costs by $84,000 in 2018 will increase the company’s sales volume to 11,300 units. Prepare a forecasted contribution margin income statement for 2018 assuming the company incurs the additional advertising costs.

HUDSON CO.
Forecasted Contribution Margin Income Statement
For Year Ended December 31, 2018
Sales
Variable costs
Contribution margin	0
Fixed costs
Income (pretax)	$0
Should the company incur the additional advertising costs?

Expert Solution

Solution 1:

HUDSON CO.
Forecasted Contribution Margin Income Statement
For Year Ended December 31, 2018
Sales	$2,227,500.00
Variable costs	$1,692,900.00
Contribution margin	$534,600.00
Fixed costs	$384,000.00
Income (pretax)	$150,600.00
Should the company purchase the machine?	Yes

Solution 2:

If company raises it selling price to $240 per unit, then

1. Contribution margin per unit = $240 - $180 = $60 per unit

2. Contribution margin ratio = CM per unit / Selling price per unit = $60 / $240 = 25%

3. Breakeven point in units = Fixed costs / CM per unit = $342,000 / $60 = 5700 units

4. Breakeven point in sales dollar = Fixed costs / CM ratio = $342,000 / 25% = $1,368,000

Solution 3:

HUDSON CO.
Forecasted Contribution Margin Income Statement
For Year Ended December 31, 2018
Sales	$2,542,500.00
Variable costs	$2,034,000.00
Contribution margin	$508,500.00
Fixed costs	$426,000.00
Income (pretax)	$82,500.00
Should the company incur the additional advertising costs?	No

ekkarill92 answered 8 months ago

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Hudson Co. reports the contribution margin income statement for 2017. HUDSON CO. Contribution Margin Income Statement...

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