Morton Company's contribution format income statement for last month is given below:

The industry in which Morton Company operates is quite sensitive 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:

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 $$7\mathrm{.}20$ per unit. However, fixed expenses would increase to a total of $$518,400$

each month. Prepare two contribution format income statements, one showing present operations and one showing how

operations would appear if the new equipment is purchased.

Refer to the income statements in $(1).$ For the present operations and the proposed new operations, compute:

a$.$ the degree of operating leverage,

b$.$ the break$-$even point in dollar sales, and

c$.$ the margin of safety in dollars and the margin of safety percentage.

Refer again to the data in $(1).$ As a manager, what factor would be critical in deciding whether to purchase the new

equipment? $($Assume enough funds are available to make the purchase.$)$

Refer to the original data. Rather than purchase new equipment, the marketing manager argues the company's marketing

strategy should be changed. Rather than pay sales commissions, which are currently included in variable expenses, the

company would pay salespersons fixed salaries and would invest heavily in advertising. The marketing manager claims this

new approach would increase unit sales by $30\%$ without any change in selling price; the company's new monthly fixed

expenses would be $$367,680$; and its net operating income would increase by $20\%.$ Compute the company's break$-$even

point in dollar sales under the new marketing strategy.