HUDSON CO. Contribution Margin Income Statement For Year Ended December 31, 2015
ID: 2497023 • Letter: H
Question
HUDSON CO. Contribution Margin Income Statement For Year Ended December 31, 2015 Sales (9,700 units at $160 each) $ 1,552,000 Variable costs (9,700 units at $120 each) 1,164,000 Contribution margin $ 388,000 Fixed costs 200,000 Pretax income $ 188,000 1. Assume Hudson Co. has a target pretax income of $163,000 for 2016. What amount of sales (in dollars) is needed to produce this target income? If Hudson achieves its target pretax income for 2016, what is its margin of safety (in percent)? (Round your answer to 1 decimal place.)
Explanation / Answer
1. Contribution Margin = Sales - Variable Cost
= $ 3,88,000 (given)
Contributin Margin Per Unit = $3,88,000/9700 = $40
Pretax Income = Contribution Margin - Fixed Cost
=>$1,63,000 = Contibution Margin - $2,00,000
=> Contribution Margin = $1,63,000 + $2,00,000
=> Contribution Margin = $3,63,000
Per Unit Contribution Margin is $40 ( Calculated Above)
So, the Total units sold are $3,63,000/$40 = 9075 units
Hence, The Total Sales needed to produce the targeted income = 9075 units * $160 = $1452000
Budgeted Sales = 9075 units
Where, Contribution Margin Ratio = (Contribution Margin / Sales) * 100
=> Contribution Margin Ratio = ( $388000 / $1552000) * 100 = 25%
Break- Even Sales = Fixed Cost / Contribution Margin Ratio
=$200000 / 25%
=$50000
Margin Of Safety = ((9075 * 160) - $50000) / (9075 * 160)
=( $1452000 - $50,000) / $1452000 = 0.97
2. Margin Of Safety = Budgeted Sales Break-even Sales Budgeted SalesRelated Questions
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