Garrett Manufacturing sold 435,000 units of its product for $60 per unit in 2020. Variable cost per unit is $50, and total fixed costs are $1,740,000 Requirements 1. Calculate (a) contribution margin and (b) operating income. 2. Garrett's current manufacturing process is labor intensive. Kate Becker, Garrett's production manager, has proposed investing in state-of-the-art manufacturing equipment, which will increase the annual fixed costs to $6,525,000. The variable costs are expected to decrease to $32 per unit. Garrett expects to maintain the same sales volume and selling price next year. How would acceptance of Becker's proposal affect your answers to (a) and (b) in requirement 1? 3. Should Garrett's executives accept Becker's proposal? Explain. Print Done Requirement 1. Calculate (a) contribution margin and (b) operating income. (a) Determine the formula used to calculate the contribution margin. Total sales Total variable costs Contribution margin The contribution margin is (b) Determine the formula used to calculate the operating income. Contribution margin. Total fixed costs Operating Income Operating income is Requirement 2. Bailey's current manufacturing process is labor intensive. Kate Keller, Bailey's production manager, has proposed investing in state-of-the-art manufacturing equipment, which will increase the annual fixed costs to $5,340,000. The variable costs are expected to decrease to $56 per unit. Bailey expects to maintain the same sales volume and selling price next year. How would acceptance of Keller's proposal affect your answers to (a) and (b) in requirement 1? Recalculate (a) and (b) if the proposal is accepted. (a) The contribution margin would be under Keller's proposal. (b) Operating income would change to Requirement 3. Should Bailey accept Keller's proposal? Explain. Operating income is expected to by income alone, Bailey should the proposal. Based on the operating Manangement would consider other factors before making the final decision. It is likely that product quality improve as a result of using state-of-the-art equipment. However, the proposal the company's fixed cost. This will the company's operating leverage and risk