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 Assume the company is considering investing in a new machine that will increase its fixed costs by $43,000 per year and decrease its variable costs by $8 per unit. Prepare a forecasted contribution margin income statement for 2020 assuming the company purchases this machine

Answer 1

Answer:

Hudson Co.

HUDSON CO.

Forecasted Contribution Margin Income Statement

For Year Ended December 31, 2020

Sales (10,100 units at $300 each)           $ 3,030,000

Variable costs (10,100 units at $232 each) 2,343,200

Contribution margin                                        686,800

Fixed costs                                                        511,000

Pretax income                                               $ 175,800

Explanation:

a) Data and Calculations:

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

HUDSON CO.

Forecasted Contribution Margin Income Statement

For Year Ended December 31, 2020

Sales (10,100 units at $300 each)           $ 3,030,000

Variable costs (10,100 units at $232 each) 2,343,200 ($240 - $8)

Contribution margin                                        686,800

Fixed costs                                                        511,000 ($468,000+$43,000)

Pretax income                                               $ 175,800

b) Hudson's pretax income will increase by $37,800 ($175,800 - $138,000), assuming it invests in the "new machine that will increase its fixed costs by $43,000 per year and decrease its variable costs by $8 per unit."