Answer:
1. Contribution Margin = $576,000
2. Contribution Margin ratio = 25%
3. Break-even point = 5,400 units
4. Break-even point in sales dollars = $1,296,000
Explanation:
Requirement 1
If Hudson Company raises its selling price to $240 per unit, the contribution margin format income statements will be as follows:
HUDSON CO.
Contribution Margin Income Statement
For Year Ended December 31, 2019
Sales Revenue ($240 × 9,600 units) = $2,304,000
less: variable expense = $(1,728,000)
($180 × 9,600 units)
Contribution Margin = $576,000
It increases due to the rise in sales price.
Requirement 2
We know,
Contribution Margin ratio = (contribution margin ÷ sales revenue) x 100
Given,
From requirement 1, we get, Contribution Margin = $576,000
And total sales revenue = $2,304,000
Putting the value into the above formula, we can get-
Contribution Margin ratio = ($576,000 ÷ $2,304,000) × 100
or, Contribution Margin ratio = 0.25 × 100
Therefore, Contribution Margin ratio = 25%
Requirement 3
We know,
Break-even point (in Units) = Fixed costs ÷ contribution margin per unit.
Given,
Fixed costs = $324,000
contribution margin per unit = sales price per unit - variable cost per unit
contribution margin per unit = $240 - $180
contribution margin per unit = $60
Putting the value into the above formula, we can get-
Break-even point (in Units) = $324,000 ÷ $60
Break-even point (in Units) = 5,400 units
It means, if Hudson company sells 5,400 units, there will be no loss or no profit.
Requirement 4
We know,
Break-even point in sales dollars = Break-even point sales in units × sales price per unit
Given,
From requirement 3, we get the break-even point sales in units = 5,400 units
Sales price per unit = $240
Putting the value into the above formula, we can get-
Break-even point in sales dollars = 5,400 units × $240
Therefore, Break-even point in sales dollars = $1,296,000
It means, if the total sales of Hudson company is $1,296,000, the company will receive no profit. It will not incur any loss too.
