Required information [The following information applies to the questions display

Question

Required information [The following information applies to the questions displayed below Hudson Co. reports the contribution margin income statement for 2017. HUDSON co. Contribution Margin Income Statement For Year Ended December 31, 2017 Sales (10,900 units at $225 each) Variable costs (10, 900 units at $180 each) Contribution margin Fixed costs Pretax income $2, 452, 500 1, 962,000 490, 500 387,000 $ 103,500 1. Compute Hudson Co.'s break-even point in units and 2. Compute Hudson Co.'s break-even point in sales dollars. 1Break-even point 2. Break-even point 45 units IPre

Explanation / Answer

Answer:

1

Breakeven point in units

8600 units

Breakeven point in Dollar

1935000

Working notes for the answer:

Break even points in units

= Fixed cost / contribution margin per units

=387,000 / (225-180)

=387,000 /45

=8600 units

Breakeven point in dollar

Break even points in units

= Fixed cost / contribution margin ratio

=387,000 /(45/225)

=387,000 /20%

=1,935,000

_______________________________________

2

Hudson company

Forecasted contribution margin income statement

Sales (10900*225)

2452500

Less: variable cost (10900*170)

1853000

Contribution margin

599500

Fixed cost (387000-39000)

348000

Income (pretax)

251500

Should company purchase this machine

Yes

____________________________________

3

Dollar sales for targeted income

= Fixed cost+targate profit / contribution margin per units

=387000+159,000 /20%
=546000/20%

=$2,730,000

Margin of safety

=Expected sales- break even sales / expected sales

=2,730,000-1935000 /2730000

=795000/2730000

=23.12%

Dollar sales for targeted income

2730000

Margin of safety

29.12%

Breakeven point in units

8600 units

Breakeven point in Dollar

1935000

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