Hudson Co. reports the contribution margin income statement for 2015. HUDSON CO.

Question

Hudson Co. reports the contribution margin income statement for 2015. HUDSON CO. Contribution Margin Income Statement For Year Ended December 31, 2015 Sales (9,500 units at $225 each) $ 2,137,500 Variable costs (9,500 units at $150 each) 1,425,000 Contribution margin $ 712,500 Fixed costs 480,000 Pretax income $ 232,500 If the company raises its selling price to $250 per unit. 1. Compute Hudson Co.'s contribution margin per unit. 2. Compute Hudson Co.'s contribution margin ratio. 3. Compute Hudson Co.'s break-even point in units. 4. Compute Hudson Co.'s break-even point in sales dollars.

Explanation / Answer

Solution-1

Revised contribution margin per unit = (Selling Price per Unit - Variable cost per unit)

Revised contribution margin per unit = ($250-$150)

Revised contribution margin per unit = $100

Solution-2

Revised contribution margin ration = (Revised contribution margin per unit / Selling Price per Unit )

Revised contribution margin ration = ($100-$250)

Revised contribution margin ration = 40%

Solution-3

Breakeven in units = Fixed costs / Contribution margin per unit

Breakeven in units = $480,000 / $100

Breakeven in units = 4,800 units

Solution-4

Breakeven point in dollars = Fixed costs /Contribution margin ratio

Breakeven point in dollars = $480,000 / 40%

Breakeven point in dollars = $1,200,000

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