Question

Hudson Co. reports the contribution margin income statement for 2017 HUDSON CO. Contribution Margin Income Statement For Year Ended December 31, 2017 Sales (8,200 units at $240 each) Variable costs (8,200 units at $180 each) Contribution margin Fixed costs Pretax income $1,968,000 1,476,000 $ 492,000 369,000 $ 123,000 1. Compute the company's degree of operating leverage for 2017 2. If sales decrease by 5% in 2018, what will be the company's pretax income? 3. Assume sales for 2018 decrease by 5%. 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 Road 1 Required 2 >

Answer 1

Answers

--requirement 1

A	Contribution margin	$492,000
B	Pretax Income	$123,000
C = A/B	Degree of Operating Leverage	4	Answer

--Requirement 2

A	Decrease in sales	5%
B	Degree of Operating Leverage	4
C = A x B	Decrease in Pretax Income	20%
D	Current Pretax Income	$123,000
E = D x C	Decrease in pretax Income	$24,600
F = D - E	Pretax Income will be	$98,400	Answer

--Requirement 3

Sales [$1968000 - 5%]	$1,869,600
Variable Costs	$1,402,200
Contribution margin	$467,400
Fixed cost	$369,000
Pretax Income	$98,400