Question

Hudson Co. reports the contribution margin income statement for 2015. HUDSON CO. Contribution Margin Income Statement For Year Ended December 31, 2015 Sales (10.200 units at $225 each) Variable costs (10,200 units at $185 each) $ 2.295.000 1,887,000 $ Contribution margin Fixed costs 408,000 279,500 Pretax income $ 128,500 If the company raises its selling price to $250 per unit. 1. Compute Hudson Co.'s contribution margin per unit. Contribution margin per unit 2. Compute Hudson Co.'s contribution margin ratio. Contribution margin ratio 3. Compute Hudson Co.'s break-even point in units. Break-even point units 4. Compute Hudson Co.'s break-even point in sales dollars. Break-even sales dollars

Answer 1

1. Contribution margin = Selling price - Variable cost per unit = $250 - $185 = $65 per unit

2. Contribution margin ratio = Contribution margin / Selling price = $65 / $250 = 0.26 or 26%

3. Break-even point = Fixed costs / Contribution margin = $279,500 / $65 = 4,300 units

4. Break-even sales dollars = Fixed costs / Contribution margin ratio = $279,500 / 26% = $1,075,000