Morton Company's contribution format income statement for last month is given below:
Sales (40,000 units x $29 per unit) $ 1, 160, 000 Variable expenses 812, 000 Contribution margin 348, 000 Fixed expenses 278, 400 Net operating income 64 69, 600Required 1 Required 2 Required 3 H Required 4 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 $626,400 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. (Round "Per Unit\" to 2 decimal places.) Show lessA Required 1 Required 2 Required 3 Required 4 ERefer to the income statements in (1). For the present operations and the proposed new operations, compute (a) the degree Eof operating leverage, (b) the breakeven point in dollar sales, and (c) the margin of safety in dollars and the margin of safety; ipercentage. (Do not round intermediate calculations. Round your percentage answers to 2 decimal places (Le. .1234 should ' Eh9.ante[9..9..1.2..:l1=): ..................................................................................................................................................................................................................... Degree of operating leverage Breakeven point in dollar sales c. Margin of safety in dollars % Margin of safety in percentage Required 1 Required 2 Required 3 Required 4 Refer again to the data in (1). 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.) Cyclical movements in the economy Reserves and surplus of the company Performance of peers in the industry OStock level maintainedRequired 1 Required 2 Required 3 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 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 $444,280; and its net operating income would increase by 20%. Compute the company's break-even point in dollar sales under the new marketing strategy. (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.) Required 4
