Question

[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 (9,900 units at $225 each)	$	2,227,500
Variable costs (9,900 units at $180 each)		1,782,000
Contribution margin	$	445,500
Fixed costs		342,000
Pretax income	$	103,500

2 ! Part 1 of 5 Required information Use the following information for the Exercises below. [The following information applies to the questions displayed below.) Hudson Co. reports the contribution margin income statement for 2017. 0.88 points eBook HUDSON CO. Contribution Margin Income Statement For Year Ended December 31, 2017 Sales (9,900 units at $225 each) $2,227,500 Variable costs (9,900 units at 1,782,000 $180 each) Contribution margin $ 445,500 Fixed costs 342,000 Pretax income $ 103,500 Hint Print Exercise 18-16 Break-even LO P2 References 1. Compute Hudson Co.'s break-even point in units and. 2. Compute Hudson Co.'s break-even point in sales dollars. 1. units Break-even Ipoint Break-even point 2.

Answer 1

Contribution Margin per unit = $225-180 = $45 per unit
Contribution Margin Ratio = $45 / 225 = 20%

1. Break even point (Units) = Fixed Costs / Contribution Margin per unit
= $342000 / 45 = 7600 units

2. Break even point (Dollars) = Fixed Costs / Contribution Margin Ratio
= $342000 / 20% = $1,710,000

1. Amount of sales required = (Fixed Costs+Required Income) / Contribution Margin Ratio
= ($342000+165000) / 20% = $2,535,000

2. Margin of Safety % = ($2535000 - 1710000) / 1710000 = 48.25%

Sales	$       2,227,500
Variable Costs	$       1,692,900
Contribution Margin	$          534,600
Fixed Costs	$          384,000
Income (Pretax)	$          150,600

Yes the company should purchase the machine

Sales	$       2,542,500
Variable Costs	$       2,034,000
Contribution Margin	$          508,500
Fixed Costs	$          426,000
Income (Pretax)	$            82,500

No company should not incur additional advertising costs.

1. Contribution Margin per unit = $240 - 180 = $60 per unit

2. Contribution Margin Ratio = $60 / 240 = 25%

3. Break even point (Units) = Fixed Costs / Contribution Margin per unit
= $342000 / 60 = 5700 units

2. Break even point (Dollars) = Fixed Costs / Contribution Margin Ratio
= $342000 / 25% = $1,368,000

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