Question

Required information The following information applies to the questions displayed below.) Hudson Co. reports the contribution margin income statement for 2019 HUDSON CO. Contribution Margin Income Statement For Year Ended December 31, 2019 Sales (11,500 units at $225 each) $2,587,500 Variable coats (11,500 units at $180 ench) 2.070,000 Contribution margin 517,500 Fixed costa 360,000 Pretax income $ 157,500 Assume the company is considering investing in a new machine that will increase its fixed costs by $36,000 per year and decrease its variable costs by $10 per unit. Prepare a forecasted contribution margin income statement for 2020 assuming the company purchases this machine HUDSON CO. Forecasted Contribution Margin Income Statement For Year Ended December 31, 2020 Sales Variable costs Contribution margin Fixed costs Income (pretaxLoss Should the company purchase the machine?

Answer 1

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Hudson
Answer c	Amount $	Note
Units	11,500.00	A
Sell price	225.00	B
Sales	2,587,500.00	C=A*B
Current Variable cost per unit	180.00	D
Less: Reduction by	10.00	E
Revised Variable cost per unit	170.00	F
Variable costs	1,955,000.00	G=F*A
Current Fixed costs	360,000.00	H
Add: Increase by	36,000.00	I
Revised Fixed costs	396,000.00	J
Contribution margin income statement	Amount $
Sales	2,587,500.00	See C
Less: Variable costs	1,955,000.00	See G
Contribution margin	632,500.00
Less: Fixed costs	396,000.00	See J
Income (pretax)/ Loss	236,500.00

The pretax income is more than current income of $ 257,500 so yes the machine should be purchased.