Question

Hudson Co. reports the contribution margin income statement for 2015. Assume sales and variable costs per unit remain constant.



HUDSON CO.
Contribution Margin Income Statement
For Year Ended December 31, 2015
Sales (9,300 units at $225 each) $ 2,092,500
Variable costs (9,300 units at $180 each) 1,674,000
Contribution margin $ 418,500
Fixed costs 321,300
Pretax income $ 97,200


The marketing manager believes that increasing advertising costs by $78,000 in 2016 will increase the company’s sales volume to 10,700 units. Prepare a forecasted contribution margin income statement for 2016 assuming the company incurs the additional advertising costs.


Forecasted contribution margin income statement for 2016

Sales ?
Variable Cost ?
Contribution Margin ?
Fixed Cost ?
Pretax Income ?

Answer 1

Answer:

Explanation:

The preparation of the forecasted contribution margin income statement for 2016 is presented below:

                                             HUDSON CO.

                          Contribution Margin Income Statement

                                         For the Year 2016

Sales (10,700 units × $225)                                       $2,407,500

Less: Variable cost (10,700 units × $180)                - $1,926,000

Contribution margin                                                    $481,500

Less: Fixed cost ($321,300 + $78,000)                   - $399,300                                                          

Pre tax income                                                            $82,200

Since the pre tax income is reduced so it is advised not to increase the advertising cost