Question

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.

HUDSON CO.
Contribution Margin Income Statement
For Year Ended December 31, 2017
Sales (9,800 units at $280 each)	$	2,744,000
Variable costs (9,800 units at $210 each)		2,058,000
Contribution margin	$	686,000
Fixed costs		504,000
Pretax income	$	182,000

Exercise 21-17 Target income and margin of safety (in dollars) LO C2

1. Assume Hudson Co. has a target pretax income of $162,000 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.)

Answer 1

P/V Ratio = Contribution/Sales P/V Ratio = $686000/$27,44,000=>25% Profit =(Sales XP/V Ratio)- Fixed Cost Desired Profit is $162000 Fixed Cost is $504,000 $162,000=(Sales Ⓡ25%) - $504,000 Sales*25%=$162000+$504000 Sales=$666000/25%=>$26,64,000 Sales at Desired Profit is $2664000 Margin Of Safety = Profit / P/V Ratio Margin Of Safety =$162000/25%=>$648,000 Break Even Sales =Fixed Cost / P/V Ratio Break Even Sales =$504000/25%=>2016000 Margin of Safety = ( Total Sales - Break Even Sales)/Total Sales Margin of Safety=($2664000 - $2016000)/2664000=>24.32% Margin of Safety =24.32%

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