[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 $170,000 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 (10,400 units at $280 each) $ 2,912,000 Variable costs (10,400 units at $210 each) 2,184,000 Contribution margin $ 728,000 Fixed costs 567,000 Pretax income $ 161,000

Explanation / Answer

Sales = (Target profit+Fixed Expenses) / Contribution Margin per unit

Contribution Margin per unit = Sales per unit - Variable Cost per unit = 280 - 210 = $70 per unit

Sales in unit = (170000+567000)/ 70 = 737000/70 = 10528.57 units

Amount in Sales = 10528.57 * 280 = $ 2,948,000

There is another method how you can find Margin of Safety.

At Breakeven Point ;

Fixed Cost = 567000

Hence Number of Units at Break-Even = Fixed cost/Contribution per unit = 567000/70 = 8100 units.

Margin of Safety (in units)= Sales Units - Break Even Units = 10528.57 - 8100 = 2428.57 units

Hence MoS = (2428.57 * 280) / Sales = (2428.57 * 280) / 2948000 = 23.06647 or Approximately 23.1%

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