Finny Inc's contribution format income statement for the most recent month is given below:

The industry in which Finny Inc. 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:

New equipment has come on the market that would allow Finny Inc. to automate a portion of its operations. Varlable expenses

would be reduced by $$5$ per unlt. However, fixed expenses would Increase to a total of $$540,000$ each month. Prepare two

contribution format Income statements: one showing present operations, and one showing how operations would appear if the new

equlpment were purchased.

$2$ Refer to the income statements in Requirement $(1)$ above. For both present operations and the proposed new operations, Compute:

a$.$ The degree of operating leverage.

b$.$ The break$-$even point in dollars.

c$.$ The margin of safety in both dollar and percentage terms.

Refer again to the data In Requirement $(1)$ above. As a manager, what factor would be paramount in your mind in deciding whether

to purchase the new equipment? $($Assume that ample funds are avallable to make the purchase.$)$

Cyclical movements in the economy

Reserves and surplus of the company

Performance of peers in the indstry

Stock level maintalned

Refer to the original data. Rather than purchase new equipment, the marketing manager argues that the company's marketing

strategy should be changed. Instead of paying sales commissions, which are Included in varlable expenses, the marketing manager

suggests that salespeople be pald fixed salarles and that the company Invest heavlly in advertising. The marketing manager claims

that this new approach would increase unit sales by $50\%$ without any change in selling price; the company's new monthly fixed

expenses would be $$285,000$; and Its net operating Income would increase by $25\%$ 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?