Question

Required information [The following information applies to the questions displayed below.] Hudson Co. reports the contribution margin income statement for 2017. HUDSON CO. Contribution Margin Income Statement For Year Ended December 31, 2017 Sales (11,500 units at $225 each) $ 2,587,500 Variable costs (11,500 units at $180 each) 2,070,000 Contribution margin $ 517,500 Fixed costs 360,000 Pretax income $ 157,500 1. Compute Hudson Co.'s break-even point in units and. 2. Compute Hudson Co.'s break-even point in sales dollars.

Answer 1

Answer:

1) Break-even point in units =8000  units

2) Break-even point (sales)  = $1,800,000  

Explanation:

Break-even point is the level of activity at which a firm must operate such that its total revenue will equal its total costs. At this point, the company makes no profit or loss because the total contribution exactly equals the total fixed costs.

Break even point in units is calculated using this formula:

Break even point in units = Total general fixed cost/ (selling price - Variable cost)

Break-even point in units = 360,000/(225- 180) = 8000  units

Break-even point in units =8000  units

2) Break-even point (sales) is computed as follows:

Break-even point (sales) =    Total general fixed cost/C/S ratio.

C/s ratio = (Selling price - variable cost)/Selling price ×  100

              = (225 - 180)/225 ×  100 = 20%

Break-even point (sales) = 360,000/20% = $1,800,000  

Break-even point (sales)  = $1,800,000  

1) Break-even point in units =8000  units

2) Break-even point (sales)  = $1,800,000