Bailey Manufacturing sold 440,000 units of its product for $69 per unit in 2017. Variable cost per unit is $57, and total fixed costs are $1,760,000. Read the requirements. Requirement 1. Calculate (a) contribution margin and (b) operating income. (a) Determine the formula used to calculate the contribution margin. Total sales - Total variable costs = Contribution margin The contribution margin is $ 5,280,000 (b) Determine the formula used to calculate the operating income. Contribution margin. Total fixed costs Operating Income Operating income is $ 3,520,000 Requirement 2. Bailey's current manufacturing process is labor intensive. Kate Hoffmann, Bailey's production manager, has proposed investing in state-of-the-art manufacturing equipment, which will increase the annual fixed costs to $4,400,000. The variable costs are expected to decrease to $55 per unit. Bailey expects to maintain the same sales volume and selling price next year. How would acceptance of Hoffmann's proposal affect your answers to (a) and (b) in requirement 1? Recalculate (a) and (b) if the proposal is accepted. (a) The contribution margin would be $ 6,160,000 under Hoffmann's proposal. (b) Operating income would change to $ 1,760,000 Requirement 3. Should Bailey accept Hoffmann's proposal? Explain. decrease by $ Based on the operating Operating income is expected to income alone, Bailey should reject the proposal