Question

Hudson Co. reports the contribution margin income statement for 2015.

HUDSON CO.
Contribution Margin Income Statement
For Year Ended December 31, 2015
Sales (10,500 units at $276 each)	$	2,898,000
Variable costs (10,500 units at $207 each)		2,173,500
Contribution margin	$	724,500
Fixed costs		400,200
Pretax income	$	324,300
						2.	If Hudson achieves its target pretax income for 2016, what is its margin of safety (in percent)? (Round your answer to 1 decimal place.)

Answer 1

Contribution margin ratio=Contribution margin/Sales

=724500/2,898,000

=0.25

Breakeven=Fixed expenses/Contribution margin ratio

=400200/0.25

=$1600800

Margin of safety=Total sales-Breakeven sales

=2,898,000-1600800

=1297200

Margin of safety%=Margin of safety/Total sales

=1297200/2,898,000

=44.8%(Approx).