Hudson Co. reports the contribution margin income statement for 2019. HUDSON CO. Contribution Margin Income Statement For Year Ended December 31, 2019 Sales (10,100 units at $300 each) $ 3,030,000 Variable costs (10,100 units at $240 each) 2,424,000 Contribution margin 606,000 Fixed costs 468,000 Pretax income $ 138,000 Assume the company is considering investing in a new machine that will increase its fixed costs by $43,000 per year and decrease its variable costs by $8 per unit. Prepare a forecasted contribution margin income statement for 2020 assuming the company purchases this machine

Hudson Co.

HUDSON CO.

Forecasted Contribution Margin Income Statement

For Year Ended December 31, 2020

Sales (10,100 units at $300 each)           $ 3,030,000

Variable costs (10,100 units at $232 each) 2,343,200

Contribution margin                                        686,800

Fixed costs                                                        511,000

Pretax income                                               $ 175,800

Explanation:

a) Data and Calculations:

HUDSON CO.

Contribution Margin Income Statement

For Year Ended December 31, 2019

Sales (10,100 units at $300 each)            $ 3,030,000

Variable costs (10,100 units at $240 each) 2,424,000

Contribution margin                                        606,000

Fixed costs                                                      468,000

Pretax income                                              $ 138,000

HUDSON CO.

Forecasted Contribution Margin Income Statement

For Year Ended December 31, 2020

Sales (10,100 units at $300 each)           $ 3,030,000

Variable costs (10,100 units at $232 each) 2,343,200 ($240 - $8)

Contribution margin                                        686,800

Fixed costs                                                        511,000 ($468,000+$43,000)

Pretax income                                               $ 175,800

b) Hudson's pretax income will increase by $37,800 ($175,800 - $138,000), assuming it invests in the "new machine that will increase its fixed costs by $43,000 per year and decrease its variable costs by $8 per unit."

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