Frieden Company's contribution format income statement for last month is shown below:

Sales (45,000 units)	$	1,800,000
Variable expenses		1,260,000
Contribution margin		540,000
Fixed expenses		432,000
Operating income	$	108,000

Competition is intense, and Frieden Companys profits vary considerably from one year to the next. Management is exploring opportunities to increase profitability.

2. For both current operations and the proposed new operations, compute (a) the degree of operating leverage, (b) the break-even point in dollars, and (c) the margin of safety in both dollar and percentage terms.

3-a. Calculate the unit sales per month at which Frieden management will be indifferent between doing the major upgrade to the manufacturing equipment and not doing the upgrade.

3-b. Based on the above analysis, should Frieden proceed with the major upgrade?

multiple choice 1

• Yes

• No

3-c. Why or why not?

4-a. Refer to the original data. Instead of doing the major upgrade to the equipment, management is considering introducing a new advertising campaign that will increase fixed expenses by $37,000 per month. Management believes the new advertisements will increase monthly unit sales by 10%. In this case what would be imapact on operating income.

4-b. Should Frieden proceed with the new advertising campaign?

multiple choice 2

• Yes

• No