Question

Hudson Co. reports the contribution margin income statement for 2019. HUDSON CO. Contribution Margin Income Statement For Year Ended December 31, 2019 Sales (10,100 units at $300 each) $ 3,030,000 Variable costs (10,100 units at $240 each) 2,424,000 Contribution margin 606,000 Fixed costs 468,000 Pretax income $ 138,000 Exercise 18-17 Target income and margin of safety (in dollars) LO C2 1. Assume Hudson Co. has a target pretax income of $167,000 for 2020. What amount of sales (in dollars) is needed to produce this target income

Answer 1

Answer: $3,175,000

Explanation:

Sales in dollars needed to produce the target income is calculated by the formula:

= (Fixed assets + Target pretax income) / Contribution margin per unit * Selling price

Contribution margin per unit = Contribution margin / Units sold

= 606,000 / 10,100

= 60 units sold

Sales in dollars needed are:

= (468,000 + 167,000) /60 * 300

= $3,175,000