Question

Refer to the information in Exercise 18-16. Assume the company is considering investing in a new machine that will increase its fixed costs by \(40,500 per year and decrease its variable costs by \)9 per unit. Prepare a forecasted contribution margin income statement for 2018 assuming the company purchases this machine.

Short answer

The pre-tax income generated by the business entity is$153,900.

Step-by-step solution

Definition of Pre-Tax Income

The income generated from the operation of the business entity before providing adjustments for the tax expenses is known as pre-tax income. The tax expenses are calculated over this income only.

Forecasted contribution margin income statement

HUDSON CO.
Forecasted contribution margin income statement
For the year ended December 31, 2017
Sales (9,600 units @ $225 each)	$2,160,000
Less: Variable cost (9,600 units @ $171 each)	(1,641,600)
Contribution margin	518,400
Less: Fixed cost (324,000+40,500)	364,500
Pre-tax income	$153,900