Hudson co. reports the contribution margin income statement for 2017. hudson co. contribution margin income statement for year ended december 31, 2017 sales (10,500 units at $225 each) $ 2,362,500 variable costs (10,500 units at $180 each) 1,890,000 contribution margin $ 472,500 fixed costs 315,000 pretax income $ 157,500 1. compute the company’s degree of operating leverage for 2017. 2. if sales decrease by 4% in 2018, what will be the company’s pretax income? 3. assume sales for 2018 decrease by 4%. prepare a contribution margin income statement for 2018.

1) The company’s degree of operating leverage (DOL) for 2017 was 3.00

2) The company’s pretax income would be $138,600 if sales decrease by 4%

3) Please relate to the MS excel sheet attached to this answer

Explanation:

Hi, well, first we need to present the equation to find the "degree of operating leverage" (DOL)

Therefore:

So, the answer to question 1 is: DOL = 3.00

Now, if sales decrease by 4%, that means that the units sold would be 10,500*(1-0.04)=10,080, therefore the pretax income would be:

So, the answer for question 2) is Pretax Income = $138,600

For question 3, please relate to the excel sheet attached to this document.

Best of luck.

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