Case Instructions.docx (60.5 KB) Page of 2 ZOOM + Changes in Cost Structure; Break-Even Analysis; Operating Leverage; Margin of Safety Morton Company's contribution format income statement for last month is given below. Sales (15,000 units x $30 per unit) ........ Variable expenses Contribution margin Fixed expenses Net operating income $450,000 315,000 135,000 90,000 $ 45,000 The industry in which Morton Company operates is quite sensitive to cyclical movements in the economy. Thus, profits vary considerably from year to year according to general economic conditions. The company has a large amount of unused capacity and is studying ways of improving profits. Required: 1. New equipment has come onto the market that would allow Morton Company to automate a portion of its operations. Variable expenses would be reduced by $9 per unit. However, fixed expenses would increase to a total of $225,000 each month. Prepare two contribution format income statements, one showing present operations and one showing how operations would appear if the new equipment is purchased. Show an Amount column, a Per Unit column, and a Percent column on each statement. Do not show percentages for the fixed expenses. us Ne Normalte 2 s reserv Case Instructions.docx Download Case Instructions.docx (60.5 KB) sue Page of 2 ZOOM + to enforc t te to the d liabilit ant or de ly benef are bein Thus, profits vary considerably from year to year according to general economic conditions. The company has a large amount of unused capacity and is studying ways of improving profits. Required: New equipment has come onto the market that would allow Morton Company to automate a portion of its operations. Variable expenses would be reduced by $9 per unit. However, fixed expenses would increase to a total of $225.000 each month. Prepare two contribution format income statements, one showing present operations and one showing how operations would appear if the new equipment is purchased. Show an Amount column, a Por Unit column, and a Percent column on each statement. Do not show percentages for the fixed expenses. 2. Refer to the income statements in (above. For both prosent operations and the proposed new operations, computo (a) the degree of operating loverage, (b) the break-even point in dollar sales, and (c) the margin of safety in both dollar and percentage terme. 3. Refer again to the data in (1) above. As a manager, what factor would be paramount in your mind in deolding whether to purchase the new equipment? (Asume that enough funds are available to make the purchase.) Refer to the original data. Rather than purchase new equipment, the marketing manager argues that the company's marketing strategy should be changed. Rather than pay sales commissions, which are currently included in variable expenses, the company would pay salespersons fixed salaries and would invest heavily in advertising. The marketing manager claims this new approach would increase unit ses by 30% without any change in selling price, the company's new monthly fixed ot be as: at cant Ign the elagating be Previous Next Norm Sres Case Instructions.docx Download Case Instructions.docx (60.5 KB) Page of 2 sue ZOOM + to ent t te to id liat 4. Refer to the original data. Rather than purchase new equipment, the marketing manager argues that the company's marketing strategy should be changed. Rather than pay sales commissions, which are currently included in variable expenses, the company would pay salesperson fed salaries and would invest heavily in advertising. The marketing manager claim this new approach would Increase unit sales by 30% without any change in selling price the company's new monthly feed ant or ly ber are be ot be at can ign the elagati be expenses would be $160,000, and is not operating income would increase by 20%. Compute the break-even point in dollar sales for the company under the new marketing strategy. Do you agree with the marketing manager's proposal? Next Previous st 13 MacBook Pro 80 F3 ODD OOD F4 F7 F6 F2 F5 07