Question

"breal even point 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 $ 138,000If the company raises its selling price to $320 per unit.

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

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

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

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


a. Contribution margin per unit

b. Contribution margin ratio %

c. Break-even point units

d. Break-even sales dollars "

Answer 1

A. $60 per unit

B. 0.20 or 20%

C. 8,400 units

D.$2,520,000

Step-by-step explanation:

Contribution Margin is the net of selling price and variable cost of the product.

Contribution margin = $300 - $240 = $60

Contribution margin ratio is the ratio of contribution to selling price of the product.

Contribution margin ratio = $60 / $300 = 0.2 = 20%

The break-even point is the level of sales at which the business incur no profit no loss.Fixed and variable costs are covered at this level of sales.

Formula for Break- even

Break-even (units) = Fixed cost / Contribution margin per unit

Placing value in the formula

Break-even (units) = $504,000 / $60 = 8,400 units

Break-even ( $ ) = Fixed cost / Contribution margin ratio

Placing value in the formula

Break-even ( $ ) = $504,000 / 20% = $2,520,000

Answer 2

a. Contribution margin per unit 0.2

b. Contribution margin ratio % 20%

c. Break-even point units 8,400

d. Break-even sales dollars $2,520,000

Step-by-step explanation:

a. Contribution margin per unit = Contribution / Selling Price

= ($300-$240) / $300

= 0.2

b. Contribution margin ratio % = Contribution / Selling Price × 100

= ($300-$240) / $300 × 100

= 20%

c. Break-even point units = Fixed Cost / Contribution per Unit

= 504,000/($300-$240)

= 8,400

d. Break-even sales dollars = Fixed Cost / Contribution margin per unit

= $504,000/ 0.2

= $2,520,000