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er 18: Homework A HUDSON CO. Contribution Margin Income Statement For Year Ended December 31, 2019 Sales (10,500 units at $225 each) Variable costs (10,500 units at $180 each) Contribution margin Fixed costs Pretax income $2,362,500 1,890,000 $ 472,50€ 315, eee $ 157,500 1. Compute the company's degree of operating leverage for 2019. 2. If sales decrease by 4% in 2020, what will be the company's pretax income? 3. Assume sales for 2020 decrease by 4%. Prepare a contribution margin income statement for 2020. ences 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 2019. (Round your answer to 1 decimal place.) Degree of operating leverage < Prev 10 of 10 Next >

Answer 1

Hudson Company Requirement 1 Degree of Operating Leverage = Contribution Margin / Pretax Income = 472500 / 157500 Requirement 2 if sales decrease by 4%, then pretax income will decrease by 3.0 x 4%, or 12%. This means pretax income will decrease by $157,500 x 12%, or $18,900. Pretax income will then equal $138,600. Requirement 3 Sales (2362500 x 96%) Variable costs (1890000 x 96%) Contribution Margin Fixed cost Pretax Income 2268000 1814400 453600 315000 138600