Hudson Co. reports the contribution margin income statement for 2019. HUDSON CO. Contribution Margin Income Statement For Year Ended December 31, 2019 Sales (10,600 units at $300 each) Variable costs (10,600 units at $240 each) Contribution margin Fixed costs $3,180,000 2,544,000 636,000 480,000 Pretax income $ 156,000 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
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
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Hudson Co. reports the contribution margin income statement for 2019.
HUDSON Co.
Contribution Margin Income Statement
For Year Ended December 31, 2019
Sales (10,600 units at $300 each)
Variable costs (10,600 units at $240 each)
Contribution margin
$3,180,000
2,544,000
636,000
Fixed costs
480,000
Pretax income
$
156,000
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](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff0e6a15e-8923-4b70-967c-767e9181f633%2Fabf529e8-16ee-41f0-a132-4f578a5f1e82%2Fuwrx9f_processed.jpeg&w=3840&q=75)
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