Question

Required information [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) Variable costs (10,100 units at $240 each) Contribution margin Fixed costs Pretax income $3,030,000 2,424,000 $ 606,000 468,000 $ 138,000 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. HUDSON CO. Forecasted Contribution Margin Income Statement For Year Ended December 31, 2018 Sales Variable costs Contribution margin Fixed costs Income (pretax) Should the company purchase the machine?

Answer 1

Solution:

Purchasing the machine will decrease the variable cost be $8 and will increase the fixed cost by $43,000.

No of units sold	10100
New Variable cost per unit	$232
New Fixed cost	$511000
HUDSON CO.
Forecasted Contribution Margin Income Statement
For Year Ended December 31, 2018
Sales	$3030000
Variable costs	$2343200
Contribution costs	$686800
Fixed costs	$511000
Income (pretax)	$175800
Should the company purchase the machine?	Yes

The company should purchase the machine because this will increase the income (pretax).