Question

1. Assume Hudson Co. has a target pretax income of $162,000 for 2020. What amount of sales (in dollars) is needed to produce this target income? 2. If Hudson achieves its target pretax income for 2020, what is its margin of safety (in percent)? (Round your answer to 1 decimal place.)

Answer 1

Answer:

1. amount of sales = $243,000

2. margin of safety = 33.3%

Explanation:

1)  required contribution margin = fixed costs + target pretax income

                                                    = 324000 + 162000

                                                    = $486,000

amount of sales = required contribution margin/ contribution margin ratio

                           = $486,000/20%

                           = $243,000

2) break-even sales = 324000/20%

                                 = $1620000

margin of safaty sales = $2430000 - 1620000

                                     = $810000

margin of safety = 810000/2430000

                           = 33.3%