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stepladder [879]
3 years ago
13

Hudson Co. reports the contribution margin income statement for 2019.

Business
1 answer:
Studentka2010 [4]3 years ago
8 0

Answer:

1. Contribution Margin = $576,000

2. Contribution Margin ratio = 25%

3. Break-even point = 5,400 units

4. Break-even point in sales dollars = $1,296,000

Explanation:

Requirement 1

If Hudson Company raises its selling price to $240 per unit, the contribution margin format income statements will be as follows:

                             HUDSON CO.

      Contribution Margin Income Statement

          For Year Ended December 31, 2019

Sales Revenue ($240 × 9,600 units)    =  $2,304,000

<em>less</em>: variable expense                         <u>  =  $(1,728,000)</u>

($180 × 9,600 units)

Contribution Margin                              =     $576,000

It increases due to the rise in sales price.

Requirement 2

We know,

Contribution Margin ratio = (contribution margin ÷ sales revenue) x 100

Given,

From requirement 1, we get, Contribution Margin = $576,000

And total sales revenue = $2,304,000

Putting the value into the above formula, we can get-

Contribution Margin ratio = ($576,000 ÷ $2,304,000) × 100

or, Contribution Margin ratio = 0.25 × 100

Therefore, Contribution Margin ratio = 25%

Requirement 3

We know,

Break-even point (in Units) = Fixed costs ÷ contribution margin per unit.

Given,

Fixed costs = $324,000

contribution margin per unit = sales price per unit - variable cost per unit

contribution margin per unit = $240 - $180

contribution margin per unit = $60

Putting the value into the above formula, we can get-

Break-even point (in Units) = $324,000 ÷ $60

Break-even point (in Units) = 5,400 units

It means, if Hudson company sells 5,400 units, there will be no loss or no profit.

Requirement 4

We know,

Break-even point in sales dollars = Break-even point sales in units × sales price per unit

Given,

From requirement 3, we get the break-even point sales in units = 5,400 units

Sales price per unit = $240

Putting the value into the above formula, we can get-

Break-even point in sales dollars = 5,400 units × $240

Therefore, Break-even point in sales dollars = $1,296,000

It means, if the total sales of Hudson company is $1,296,000, the company will receive no profit. It will not incur any loss too.

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