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 (11,000 units at $300 each) $3,300,000 Variable costs (11,000 units at $240 each) Contribution margin $ 660,000 Fixed costs 360,000 Pretax income $ 300,000 1. Assume Hudson Co. has a target pretax income of $158,000 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.) es Amount of sales Margin of 4. safety

Answer 1

Part 1) Calculation of New sales for targeted income

New Contribution Margin= Fixed cost+ Pre tax income

= 360000+300000 = 660000

Now assume X units were sold by company

Contribution Margin= (No of units sold* Sales Price)- (No of units sold*Variable cost per unit),

Here,

660000= (x*300)- (x*240)

x =660000/60

New Sales= 660000*300/60= 3300000 ANS

Part 2) Break Even Sales= Fixed expenses/Contributin Margin%

Break Even Sales=360000/(660000/3300000*100)

   Break Even Sales=360000/20%=1800000

Margin of Safety=( Sales-Break even sales)/ Sales*100

Margin of Safety=(3300000-1800000)/3300000*100= 45.45%