Required information The following information applies to the questions displaye

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 $2,565, 000 Variable costs (11,400 units at $180 each) Contribution margin Fixed costs Pretax income 2W000 360,000 153,000 1. Assume Hudson Co. has a target pretax income of $150,000 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.) 1. Amount of sales 2. Margin of safety

Explanation / Answer

Answer:-1)-Amount of sales in dollars needed to produce target income:-

=(Fixed costs+ Target income/Contribution margin ratio

=($360000+$150000)/20% =$2550000

2)- Margin of safety in %=(Margin of safety sales in dollars/total sales in dollars)*100

=($750000/$2550000)*100

=29.4%

Explanation:-

Margin of safety in %=Pretax income/ Contribution margin ratio

=$150000/20% =$750000

Contribution margin ratio=(Contribution/Sales)*100

=($513000/$2565000)*100 =20%

Margin of safety sale=Total sales-BEP sales

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