Question

HUDSON CO. Contribution Margin Income Statement For Year Ended December 31, 2017 Sales (10,700 units at $300 each) $ 3,210,000 Variable costs (10,700 units at $240 each) 2,568,000 Contribution margin $ 642,000 Fixed costs 504,000 Pretax income $ 138,000

If the company raises its selling price to $320 per unit.


1. Compute Hudson Co.'s contribution margin per unit.

2. Compute Hudson Co.'s contribution margin ratio.

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

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


1. Contribution margin per unit

2. Contribution margin ratio %

3. Break-even point units

4. Break-even sales dollars

Answer 1

1. Contribution margin per unit = $80

2. Contribution margin ratio % =25%

3. Break-even point units = 6300 units

4. Break-even sales dollars= $2,016,000

Step-by-step explanation:

Contribution margin per unit = Selling price per unit - Variable cost per unit

= $320 - $240

= $80

2. Contribution margin ratio = Contribution margin per unit / Selling price per unit

= $80 / $320

= 25%

3. Break-even point in units = Fixed cost / Contribution margin per unit

= $504,000 / $80

= 6,300 units

4. Break-even point in sales dollars = (Fixed cost / Contribution margin per unit) X Selling price per unit

= ($504,000 / $80) X $320

= $2,016,000