Question

14 Required information [The following information applies to the questions displayed below.) Hudson Co. reports the contribution margin income statement for 2019. Part 2 of 3 BUDOON CO. Contribution Margin Income Statement For Year Ended December 31, 2019 Salas (11,000 units at $300 each) Variable coste (11,000 units at $240 each) Contribution margin Fixed costs Pretax income $3,300,000 2.640.000 €60.000 360,000 $ 300,000 1. Assume Hudson Co. has a target pretax income of $158,000 for 2020. What amount of sales (in dollars) is needed to produce this target Income? 2. If Hudson achieves its target pretax income for 2020, what is its margin of safety ſin percent? (Round your answer to 1 decimal place.) 1. Amount of sales 2. Margin of safety < Prev 14 15 of 15 !! Next >

Answer 1

1.amount of sales	2,590,000
2.margin of safety	30.5%

working:

1.

target pretax income	158,000
add: fixed costs	360,000
target contribution margin	518,000
target sales (518,000*300 sale price / 60 contribution per unit)	2,590,000

margin of safety:

(budgeted sales - break even sales )/ budgeted sales *100.

here,

break even sales = fixed costs / PV ratio

PV ratio = $60 contribution per unit / $300 per unit

=>0.20.

break even sales = 360,000/0.20

=>1,800,000.

margin of safety = (2,590,000-1,800,000) / 2,590,000*100

=>30.5%