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Morton Company's statements of profit and loss for last month is given below: The industry in which Morton Company operates is quite sensitive to cyclical
Morton Company's statements of profit and loss 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: 1.New equipment has come onto the market that would allow Morton Company to automate a portion of its operations. Variable costs would be reduced by 9 per unit. However, fixed costs would increase to a total of 495,000 each month. Prepare two contribution-type statements of profit and loss, one showing present operations and one showing how operations would appear if the new equipment is purchased. (Do not show percentages for the fixed costs.) 2.Refer to the statements of profit and loss in Requirement 1 above. For both present operations and the proposed new operations, compute the following. (Round your percentage and leverage answers to 2 decimal places.) 3.Refer again to the data in Requirement 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 available to make the purchase.) The reduction in operational costs of the new equipment. The improvement of efficiency of the new equipment. The cyclical movements in the economy. None of the above. 4.Refer to the original data. Rather than purchase new equipment, the president is thinking about changing the company's marketing method. Under the new method, sales would increase by 20% each month and profit would increase by one-third. Fixed costs could be slashed to only 105,600 per month. Compute the break-even point for the company after the change in marketing method. (Do not round intermediate calculations. Round your answer to the nearest whole number.)
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