Hudson Company reports the following contribution margin income statement.

 Hudson Company reports the following contribution margin income statement.
 

HUDSON COMPANY
Contribution Margin Income Statement
For Year Ended December 31
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
Income    $ 108,000
1. Compute break-even point in units.
2. Compute break-even point in sales dollars.



Explanation
1.
Break-even in units = Fixed costs / Contribution margin per unit
= $324,000 / ($225 − $180)
= 7,200 units

2.
Break-even in dollars = Fixed costs / Contribution margin ratio
= $324,000 / 20%*
= $1,620,000

*Computed as $45 / $225

 

1. Assume Hudson has a target income of $162,000. What amount of sales dollars is needed to produce this target income?
2. If Hudson achieves its target income, what is its margin of safety (in percent)? (Round your answer to 1 decimal place.)



Explanation
1.
Dollar sales for target income = Fixed costs + Target income / Contribution margin ratio
= $324,000 + $162,000 / 20%*
= $2,430,000

*Computed as $45 / $225

2.
Margin of safety (%) = Expected sales − Break-even sales / Expected sales
= $2,430,000 − $1,620,000* / $2,430,000
= 33.3% (rounded)

*Computed as $324,000 / 20%

Thanks