man mits must be sold each month to earn LIL Margin of Safety (104 LOS, L07, LOS Sales (30,000 units) Variable expenses Contribution margin Fixed expenses. Operating income $900,000 630,000 270,000 180,000 $ 90,000 1 The company has a large amount of unused capacity and is studying ways of improving profits. Required: New equipment has come on the market that would allow Duchamp Company to automate a por- tion of its operations. Variable costs would be reduced by $9 per unit. However, fixed costs would increase to a total of $450,000 each month. Prepare two contribution format income statements , one showing current operations and one showing how operations would appear if the new equip- ment is purchased. Show an Amount column, a Per Unit column, and a Percentage column on each statement. Do not show percentages for the fixed costs. 2. Refer to the income statements in (1) above. For both current operations and the proposed new operations, compute (a) the degree of operating leverage. (b) the break-even point in dollars, and (c) the margin of safety in both dollar and percentage terms. 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? (You may assume that ample funds are avail- able to make the purchase.) 4. Refer to the original data. Rather than purchase new equipment, the marketing manager argues that are included in variable expenses, the marketing manager suggests that salespeople be paid fixed the company's marketing strategy should be changed. Instead of paying sales commissions, which salaries and that the company invest heavily in advertising. The marketing manager claims that this new approach would increase unit sales by 60% without any change in selling price, the company's Compute the break-even point in dollar sales for the company under the new marketing strategy. Do new monthly fixed expenses would be $247.500, and its operating income would increase by 25%. you agree with the marketing manager's proposal? PROBLEM 4-31 CH PROBLEM - Changes in Cast Structure: Break-Even Analysis: Operating Leverage: Dachamp Company's contribution format income statement for the most recent month is given below: conomy. Thus, profits vary considerably from year to year according to general economic conditions