Frieden Company's contribution format income statement for the most recent month is given below:

Sales (48,000 units)	$	1,008,000
Variable expenses		705,600
Contribution margin		302,400
Fixed expenses		241,920
Net operating income	$	60,480

The industry in which Frieden 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 on the market that would allow Frieden Company to automate a portion of its operations. Variable expenses would be reduced by $6.30 per unit. However, fixed expenses would increase to a total of $544,320 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.

2.	Refer to the income statements in (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. 4. Refer to the original data. Rather than purchase new equipment, the marketing manager argues that the company