Bailey manufacturing sold 420,000 units of its products for $69 per unit in 2017. Variable cost per unit is $57, and total fixed costs are $1,760,000.

   

Requirement 1. Calculate (a) contribution margin and (b) operating income. (a) Determine the formula used to calculate the contribution margin. Tolal sales - Total variable costs = Contribution margin The contribution margin is $ 4,350,000 (b) Determine the formula used to calculate the operating income. Contribution margin - Tolal fixed costs Operating Income Operating income is $ 2,610,000 Requirement 2. Bailey's current manufacturing process is labor intensive. Kate Fischer, Bailey's production manager, has proposed investing in state-of-the-art manufacturing equipment, which will increase the annual fixed costs to $5220,000. The varlable costs are expected to decrease to S46 per unit. Bailey expects to maintain the same sales volume and selling price next year. How would acceptance of Fischer's proposal affect your answers to (a) and (b) in requirement 1?