Question

Hudson Co. reports the contribution margin income statement for 2019. HUDSON CO. Contribution Margin Income Statement For Year Ended December 31, 2019 Sales (9,800 units at $289 each) Variable costs (9,800 units at $210 each) Contribution margin Fixed costs E Pretax income $2,520,000 1,890,000 $ 630,000 420,000 $ 210,000 1. Compute the company's degree of operating leverage for 2019. 2. If sales decrease by 6% in 2020, what will be the company's pretax income? 3. Assume sales for 2020 decrease by 6%. Prepare a contribution margin income statement for 2020. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Compute the company's degree of operating leverage for 2019. (Round your answer to 1 decimal place.) Degree of operating leverage Required 2 >

Answer 1

Solution:

1) Degree of operating leverage = Contribution margin / Pretax income = 630,000 / 210,000 = 3

2) Pretax income: $172,200

3)

Sales (8460 units * 280)	2,368,800
Variable costs (8460 units * 210)	1,776,600
Contribution margin	592,200
Fixed costs	420,000
Pretax income	172,200