Exercise - Target income and margin of safety
Hudson Co. reports the contribution margin income statement for 2017.
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HUDSON CO. Contribution Margin Income Statement For Year Ended December 31, 2017
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Sales (9,900 units at $225 each)
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$2,227,500
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Variable costs (9,900 units at $180 each)
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$1,782,000
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Contribution margin
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$445,500
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Fixed costs
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342,000
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Pretax income
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$103,500
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1. Assume Hudson Co. has a target pretax income of $165.000 for 2018. What amount of sales (in dollars) is needed to produce this target income?
2. If Hudson achieves its target pretax income for 2018, what is its margin of safety (in percent)?