cam 12 (CHS-8) Hudson Co reports the contribution margin income statement for 20

Question

cam 12 (CHS-8) Hudson Co reports the contribution margin income statement for 2015. Assume sales remain constant at 10,600 units HUDSON Co Contribution Margin Income Statement For Year Ended December 31, 2015 Sales (10,600 units at $274 each) Variable costs (10,600 units at $225 each) $2,904,400 2,385,000 Contribution margin Fixed costs $519.400 333,000 Pretax income $ 186,400 Assume the company is considering investing in a new machine that will increase its fixed costs by $45,500 per year and decrease its variable costs by $10 per unit. Prepare a forecasted contribution margin income statement for 2016 assuming the company purchases this machine HUDSON co Forecasted Contribution Margin Income Statement For Year Ended December 31, 2016 Sales Variable costs Contribution margin Fixed costs Income (pretax) Should the company purchase the machine? No

Explanation / Answer

HUDSON CO.

Forecasted Contribution Margin Income Statement.

For the Year Ended December 31,2016

Should the company purchase the machine?

Yes

Explanation : Since the overall pretax income of the company increases due to utilization of proposed machine , the compay should purchase the machine.

Sales $2,904,400 Variable costs [10,600 units * ($225-$10) ] 2,279,000 Contribution Margin 625,400 Fixed Costs ($333,000 + $45,500) 378,500 Income (pretax) $246,900

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