Question

Hudson Co. reports the contribution margin income statement for 2015. HUDSON CO.Contribution Margin Income StatementFor Year Ended December 31, 2015 Sales (9,600 units at $225 each) $ 2,160,000 Variable costs (9,600 units at $180 each) 1,728,000 Contribution margin $ 432,000 Fixed costs 324,000 Pretax income $ 108,000 If the company raises its selling price to $240 per unit.1. Compute Hudson Co.'s contribution margin per unit.Contribution Margin is: _______(Per Unit)2. Compute Hudson Co.'s contribution margin ratio.Contribution Margin Ratio is: ______(%)3. Compute Hudson Co.'s break-even point in units.Break-even point is: _______(units)4. Compute Hudson Co.'s break-even point in sales dollars.Brake-even sales dollars is: ________

Answer 1

Answer:

1) $60 2) 25% 3) 5,400 units 4) $1,296,000

Explanation:

Part 1: Compute the Contribution Margin Per Unit based on the new selling price of $240

= New Selling Price - Variable Cost per unit = $240- $180 = $60 per unit

Part 2) Compute Hudson Co's contribution Margin Ration

= The Contribution per unit (determined in step 1 )/ Selling Price x 100

= 60/240 x 100= 25%

part 3)   Compute Hudson Co.'s break-even point in units.

the formula = Fixed cost/ contribution margin per unit pre-determined

= $324,000/ $60 = 5,400 units

Part 4) Compute Hudson Co.'s break-even point in sales dollars.

The formula = Fixed cost/ the predetermined Contribution margin

= $324,000/25%= $324,000/0.25 = $1,296,000