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

Assume the company is considering investing in a new machine that will increase its fixed costs by $35,500 per year and decrease its variable costs by $8 per unit. Prepare a forecasted contribution margin income statement for 2018 assuming the company purchases this machine.

HUDSON CO. Contribution Margin Income Statement For Year Ended December 31, 2017 Sales (11,600 units at $225 each) $ 2,610,000 Variable costs (11,600 units at $180 each) 2,088,000 Contribution margin $ 522,000 Fixed costs 315,000 Pretax income $ 207,000

Explanation / Answer

HUDSON CO.

Forecasted Contribution Margin Income Statement

For Year Ended December 31, 2018

Sales $2,610,000 Variable costs $1,995,200 Contribution margin $614,800 Fixed costs $350,500 Income (pretax) $264,300 Should the company purchase the machine? YES

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