Knight Manufacturing sold 425,000 units of its product for $62 per unit in 2017. Variable cost per unit is $50, and total fixed costs are $1,700,000. Read the requirements? 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. (1) (2) Operating Income Operating income is $ Requirement 2. Knight's current manufacturing process is labor intensive. Kate Hoffmann, Knight's production manager, has proposed investing in state-of-the-art manufacturing equipment, which will increase the annual fixed costs to $5,100,000. The variable costs are expected to decrease to $48 per unit. Knight expects to maintain the same sales volume and selling price next year. How would acceptance of Hoffmann'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 Hoffmann's proposal. (b) Operating income would change to $ Requirement 3. Should Knight accept Hoffmann's proposal? Explain. (3) Based on the operating Operating income is expected to income alone, Knight should by $ the proposal. (4) Manangement would consider other factors before making the final decision. It is likely that product quality (5) improve as a result of using state-of-the-art equipment. However, the proposal (6) the company's fixed cost. This will (7) the company's operating leverage and risk. 1: Requirements 1. Calculate (a) contribution margin and (b) operating income. 2. Knight's current manufacturing process is labor intensive. Kate Hoffmann, Knight's production manager, has proposed investing in state-of-the-art manufacturing equipment, which will increase the annual fixed costs to $5,100,000. The variable costs are expected to decrease to $48 per unit. Knight expects to maintain the same sales volume and selling price next year. How would acceptance of Hoffmann's proposal affect your answers to (a) and (b) in requirement 1? 3. Should Knight accept Hoffmann's proposal? Explain. (2) (1) O Contribution margin Sale price per unit Total fixed costs Total sales Total variable costs O Units Contribution margin Sale price per unit Total fixed costs O Total sales Total variable costs O Units (3) (6) (7) increase O decrease (4) O reject accept would would not decreases O increases decrease increase