Frieden Company's contribution format income statement for last month is shown below: Sales (40,000 units) $1,200,000 Variable expenses 840.000 Contribution margin 360.000 288,000 Fixed expenses Operating income 72,000 Competition is intense, and Frieden Company's profits vary considerably from one year to the next Management is exploring opportunities to increase profitability. Required 1. Frieden's management is considering a major upgrade to the manufacturing equipment, which would result in fixed expenses increasing by $360,000 per month. However, variable expenses would decrease by $9 per unit. Selling price would not change. Prepare two contribution format income statements, one showing current operations and one showing how operations would appear if the upgrade is completed. Show an Amount column, a Per Unit column, and a Percentage column on each statement. FRIEDEN COMPANY Contribution Margin Income Statement Present Proposed Per Unit Amount Per Unit Amount Sales 1,200,000 30 30 100 100 1,200,000 840,000 21 70 480,000 12 40 Variable expenses 6 0 720,000 60 360,000 Contribution margin 360,000 Fixed expenses 288.000 2.000 360,000 Operating income 2. Refer to the income statements in requirement 1 above. 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. Present Proposed 5 2 a. Degree of operating leverage b. Break-even point in dollars 960.000 600.000 240.000 600.000 c Margin of safety in dollars 20% 50 Margin of safety in percentage