Question

Hudson Co. reports the contribution margin income statement for 2017 WDSON CO. Contribution Margin Ton Statement Por Year Ended December 31, 2017 Sales (11,000 units at $175 each) Variable coat (11,000 wita at $140 sach) Contribution megin Tixed costa Pretax income $1,925,000 1,540,000 $385,000 315,000 $ 70,000 1. Compute the company's degree of operating leverage for 2017 2. If sales decrease by 4% in 2018, what will be the company's pretax income? 3. Assume sales for 2018 decrease by 4%. Prepare a contribution margin income statement for 2018. 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 2017. (Round your answer to 1 decimal place. Degree of operating leverage Required) < Prev 10 of 15 Ne SAMSUNG

Answer 1

Requirement 1:

Degree of operating leverages = Contribution Margin / Pretax Income

Degree of operating leverages = $385,000 / $70,000 = 5.5 times

Requirement 2:

If sale is decreased by 4%, pretax income will decrease by 5.5 * 4 = 22%. (Degree of operating leverage * sales decrease %).

Pretax income will decrease by = $70,000 * 22% = $15,400

Pretax Income after sales decrease = $70,000 - $15,400 = $54,600

Requirement 3:

HUDSON CO.

Contribution Margin Income Statement

For Year Ended December 31, 2018

Particulars	$
Sales ($1,925,000 * 96%)	1,848,000
Less: Variable cost ($1,540,000 * 96%)	1,478,400
Contribution Margin	369,600
Less: Fixed Cost	315,000
Pretax Income	54,600

All the best...