Required Information The following information applies to the questions displaye

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Required Information The following information applies to the questions displayed belowJ Hudson Co. reports the contribution margin income statement for 2017. of 5 HUDSON co. Contribution Margin Income Statement For Year Ended December 31, 2017 Sales (10,000 units at $300 each) Variable costs (10,000 units at $240 each) Contribution margin Fixed costs Pretax income 3,000,900 400,000 600,000 428,800 180,000 56:44 Assume the company is considering investing in a new machine that will increase its fixed costs by $42.500 per year and decrease its variable costs by $10 per unit. Prepare a forecested contribution margin income statement for 2018 assuming the company purchases this machine. ences HUDSON CO Forecasted Contribution Margin Income Statement For Year Ended December 31, 2018 Sales Variable costs Contribution margin Fixed costs Income (pretax) Should the company purchase the machine?

Explanation / Answer

Hudson Co

Forecasted contribution margin Income statement

Sales 3000000

Variable costs 2300000

Contribution margin 700000

Fixed costs 462500

Pretax Income 237500

Yes, the machine should be purchased since the net pretax income is higher.

Contribution margin = 300-240 = $60 per unit

Contribution margin ratio = 60/300 = 20%

Breakeven point in units = 420000/60 = 7000 units

Breakeeven point in $ = 7000*300 = $2100000

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