[The following information applies to the questions displayed below.] Hudson Co.

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[The following information applies to the questions displayed below.]

Hudson Co. reports the contribution margin income statement for 2017.

1. Assume Hudson Co. has a target pretax income of $172,000 for 2018. What amount of sales (in dollars) is needed to produce this target income?
2. If Hudson achieves its target pretax income for 2018, what is its margin of safety (in percent)? (Round your answer to 1 decimal place.)

HUDSON CO. Contribution Margin Income Statement For Year Ended December 31, 2017 Sales (10,600 units at $300 each) $ 3,180,000 Variable costs (10,600 units at $240 each) 2,544,000 Contribution margin $ 636,000 Fixed costs 480,000 Pretax income $ 156,000

Explanation / Answer

Contribution margin ratio = 60*100/300 = 20%

1) Amount of sales = (480000+172000)/.20 = 3260000

2) Break even sales = 480000/.20 = 2400000

Margin of safety = (3260000-2400000)*100/3260000 = 26.4%

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