Stateline Berry Farm harvests early-season blueberries for shipment throughout Michigan and Illinois in July. The blueberry farm is maintained by a permanent staff of 10 employees and seasonal workers who pick and pack the blueberries. The blueberries are sold in crates containing 100 individually packaged one-quart containers. Affixed to each one-quart container is the distinctive Stateline Berry Farm logo inviting buyers to “Enjoy the berry best blueberries in the world!” The selling price is \($90\) per crate, variable costs are \($80\) per crate, and fixed costs are \($280,000\) per year. In the year 2017, Stateline Berry Farm sold 50,000 crates.

Required

a. Prepare a contribution income statement for the year ended December 31, 2017.

b. Determine the company’s 2017 operating leverage.

c. Calculate the percentage change in profits if sales decrease by 10 percent.

d. Management is considering the purchase of several berry-picking machines. This will increase annual fixed costs to \($375,000\) and reduce variable costs to \($77.50\) per crate. Calculate the effect of this acquisition on operating leverage and explain any change.