Assume the company is considering investing in a new machine that will increase its fixed costs by $36,000 per year and decrease its variable costs by $10 per unit. Prepare a forecasted contribution margin income statement for 2018 assuming the company purchases this machine

Find below complete question:

Hudson Co. reports the contribution margin income statement for 2017. Assume sales remain constant at 10.000 units.

HUDSON CO.

Contribution Margin Income Statement

For Year Ended December 31, 2017

Sales (10,000 units at $244 each)                    $2,440,000

Variable costs (10,000 units at $195 each)             $1,950,000

Contribution margin                                              $490,000

Fixed costs                                                               $327,600

Pretax Income                                                       $162,400

Assume the company is considering investing in a new machine that will increase its fixed costs by $36,000 per year and decrease its variable costs by $10 per unit.

Prepare a forecasted contribution margin income statement  for 2018 assuming the company purchases this machine

The new pretax income is  $226,400 compared to 2018 $162,400,which implies that investing in the new machine is viable

Explanation:

The forecast contribution margin income statement for 2018 is prepared below with fixed costs of $36,000 added to the previous cost of $327,600 while variable cost per unit drops by $10 to $185 per unit

Hudson Co,forecast contribution margin income statement for 2018

Sales (10,000*$244)                                  $2,440,000

variable cost(10,000*$185)                       ($1,850,000)

Contribution margin                                   $590,000

fixed costs( $327,600+$36,000)              ($ 363,600)

Pretax income                                             $ 226,400

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