Hudson Co. reports the contribution margin income statement for 2019. HUDSON CO. Contribution Margin Income Statement For Year Ended December 31, 2019 Sales (10,200 units at $225 each) $ 2,295,000 Variable costs (10,200 units at $180 each) 1,836,000 Contribution margin 459,000 Fixed costs 360,000 Pretax income $ 99,000

1. Assume Hudson Co. has a target pretax income of $168,000 for 2020. What amount of sales (in dollars) is needed to produce this target income?

2. If Hudson achieves its target pretax income for 2020, what is its margin of safety (in percent)?

Assume the company is considering investing in a new machine that will increase its fixed costs by $43,500 per year and decrease its variable costs by $9 per unit. Prepare a forecasted contribution margin income statement for 2020 assuming the company purchases this machine.

HUDSON CO.Forecasted Contribution Margin Income Statement

For Year Ended December 31, 2020

Sales

Variable costs

Contribution margin

Fixed costs

Income (pretax)/Loss

Should the company purchase the machine?