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Hi, I need help with this accounting assignment questions. Frieden Company's contribution format income statement for last month is shown below: Sales (45,000 units) Variable
Hi, I need help with this accounting assignment questions.
Frieden Company's contribution format income statement for last month is shown below: Sales (45,000 units) Variable expenses $ 630,000 Contribu tion margin Fixed expenses Operatin g income 900,000 270,000 216,000 $ 54,000 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 $270,000 per month. However, variable expenses would decrease by $6 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. 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 breakeven point in dollars, and (c) the margin of safety in both dollar and percentage terms. Present Degree of operating leverage Break-even point in dollars Margin of safety in dollars Margin of safety in percentage % Proposed % 3 - Calculate the unit sales per month at which Frieden management a will be indifferent between doing the major upgrade to the . manufacturing equipment and not doing the upgrade. Unit sales (per month) = 3b. Based on the above analysis, should Frieden proceed with the major upgrade? 3c. Why or why not? (equals, greater than or less than - fill in the blanks) In this case, the indifference point the current level of sales at which point the upgrade have an impact on the operating income. So Frieden's proceed to upgrade. 4a. 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 $29,000 per month. Management believes the new advertisements will increase monthly unit sales by 20%. In this case what would be imapact on operating income. Operating income = Increase by or decrease by? 4b. Should Frieden proceed with the new advertising campaignStep by Step Solution
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