Help with 1,2,3,4
Morton Company's contribution format income statement for last month is given below Saes (48.000 units $29 per unit) Vaiable expenses Contribution margin Fixnd expenses $1,392,000 974 400 417,800 334,080 $ 83,520 Net operating inoome The industry in which Morton Company operates is quite sensitve 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 onto the market that would allow Morton Company to automate a portion of its operations. Variable expenses would be reduced by $8.70 per unit, However, fixed expenses would increase to a total of $751,680 each month. Prepare two contribution format income statements, one showing present operations and one showing how operations would appear if the new eqipment is purchased (Round your "Per unit" answers to 2 decimal places.) Answer is complete but not entirely correct Morten Company Contribution Income Statemant Present Proposed Amount Per Unit % Amount Per Unit s 1,302.000s 29.00 20.00 O Sales 100 % 1,392.000 29.00 100 % Variable axpenses 974,400 69 % 566.800 11.60 40 % 835 200 751,680 Contribution margin 417600 9.00 31 17.40 60 % Fixed expenses 334,080 83.520 83,520 Net operating income 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. Answer is complete and correct. Present Proposed Degree of operating leverage 50 10 b. The break-even point in dollar sales Answer is complete but not entirely correct. Present Proposed Break-even point in dollar sales s 1,308,480 s 1,308,480 c. The margin of safety in both dollar and percentage terms. Answer is complete but not entirely correct. Present Proposed 83,520 83,520 Margin of safety in dollar sales Margin of safety in percentage 6 % 6 % 3. Refer again to the data in (1) above. As a manager, what factor would be paramount in your mind in deciding whether to purchase the new equipment? (Assume that enough funds are available to make the purchase.) OReserves and surplus of the company OStock level maintained 0oCycical movements in the economy OPerformance of peers in the indstry 4. Refer to the original data. Rather than purchase new equipment, the marketing manager argues that the company's marketing strategy should be changed. Rather than pay sales commissions, which are cumenty included in variable expenses, the company would pay salespersons fxed salaries and would invest heavly in advertising. The marketing manager claims this new approach would increase unit sales by 50 % without any change in selling prioe; the company's new monthly fxed expenses would be $417,600, and its net operating income would inorease by 25% Compute the break-even point in dollar sales for the company under the new marketing strategy Answer is complete but not entirely correct New break even point in dollar sales $ 1,857,000
