14 Frieden Company's contribution format income statement for the most recent month is given below Sales (45000 units) $ 990,000 Variable expenses 693000 Contribution Margin 297,000 fixed Expenses 237000 Net Operating income 59400 * Requirement (1) Present and proposed statement Present Proposed Amout % Amount Per unity Sales 990,ooo | $22.00 looy [990,000 100% Variable Expenses 693000 15.40 707 396,000 8.80 40% Contribution Margin 6.60 30% 594,000 13.20 60% fixed expenses 237600 534 600 59400 Net operating (Loss) 59400 Per unit 2200 291000 for both present and Proposed erand new operations Compute the degree of operating leverage. Present Proposed Degree of operating leverage Present Proposed * The breakeven point in Dollars $ 18 Present Proposed * Margin of safety in dollars. $ $ Margin of safety in Percentage 7 % As a * Refer again to the data in Requirement (1) Above manager what factor would be paramount in your mind in deciding whether to purchase the new equipment ? McQ | o Cyclical movements 0 Reserves and surplus of the company o Stock level maintained o Performance of peers in the industry in the economy O * Refer to the original data. Rather than purchase new equipment, the marketing managers agues that the company's market strategy Should be changed. Instead of paying sales commission, which are included in variable expenses, the marketing manager suggests that salespeople be paid fixed salaries and that the company invest heavily in advertising. The marketing manager claims that this new approach would increase unet sales by 50% without any change in selling price. The company new monthly fixed expenses would be & 297,000 and its net operating income would increase by 25%. Compute the Break of even point in dollars sales for the company under the new marketing Strategy Do you agree with the marketing manager's proposal