Due to erratic sales of its sole product a disposable pocket camera Markline Company has been experiencing difficulty for some time. The Companys contribution format income statement for the most recent month is given below:

Sales (30,000 units x $20.00 per unit)

$600,000 Variable Expenses 360,000

Contribution Margin 240,000

Fixed Expenses 250,000

Net Operating Loss $(10,000)

5. By automating certain operations, the company could reduce variable costs by $2.00 per unit. However, fixed cost would increase by $65,000 each month. a. Compute the new CM ratio and new break-even point in both units and dollars. b. Assume that the company expects to sell 40,000 units next month. Prepare two contribution format income statements, one assuming that operations are not automated and one assuming that they are. (Show data on a per unit and percentage basis, as well as in total for each alternative) c. Would you recommend that the company automates its operations? Explain.

6. Explain margin of safety and operating leverage. How would these apply to question 1.

7. With the advent of Tablets, phones with cameras, discuss the merits of a portable camera. (Pro and Con). Should the company discontinue making the product. Please give your reasons.