Question

Use the following information for the Exercises below. [The following information applies to the questions displayed below.] Hudson Co. reports the contribution margin income statement for 2017. HUDSON CO. Contribution Margin Income Statement For Year Ended December 31, 2017 Sales (10,100 units at $300 each) $ 3,030,000 Variable costs (10,100 units at $240 each) 2,424,000 Contribution margin $ 606,000 Fixed costs 468,000 Pretax income $ 138,000 Exercise 18-16 Break-even LO P2 1. Compute Hudson Co.'s break-even point in units and. 2. Compute Hudson Co.'s break-even point in sales dollars. 1. Assume Hudson Co. has a target pretax income of $167,000 for 2018. What amount of sales (in dollars) is needed to produce this target income? 2. If Hudson achieves its target pretax income for 2018, what is its margin of safety (in percent)? (Round your answer to 1 decimal place.) Assume the company is considering investing in a new machine that will increase its fixed costs by $43,000 per year and decrease its variable costs by $8 per unit. Prepare a forecasted contribution margin income statement for 2018 assuming the company purchases this machine. If the company raises its selling price to $320 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. *please show all parts*

Answer 1

• All working forms part of the answer
• Amounts are in $
• Break Even in Units and in Sales Dollars

A	Fixed cost	468000
B	Contribution per unit	60
C=A/B	Break Even in Units	7800
A	Break Even in Units	7800
B	Sale price per unit	300
C=AxB	Break Even point in sales dollars	$2340000

• Sale required to earn target income of $167000

A	Contribution margin	606000
B	Sale Revenue	3030000
C=A/B	Contribution Ratio	20.00%
A	Target Pre-tax Income	167000
B	Fixed Cost	468000
C=A+B	Total contribution required	635000
D	Contribution Ratio	20.00%
E=C/D	Amount of Sales required	$3175000

• Margin of Safety if target sales is achieved

A	Sales	3175000
B	Break Even Sales	2340000
C=A-B	Margin of Safety Sales	$835000
D=C/A	margin of Safety %	26.3%

• If machine is purchased

	Units	Amount	per unit
Sales	10100	300	3030000
(-) Variable cost	10100	232	2343200
Contribution margin	10100	68	$686,800
(-) Fixed cost			511000
Pretax Income			$175,800

• If Sales price is increased to $320

A	Sales price	$320
B	variable cost	$240
C=A-B	Contribution per unit	$80
D=C/A	Contribution margin ratio	25.00%
E	Fixed Cost	$468000
F=E/C	Break Even in Units	5850
G=E/D	Break Even in Dollars	1872000