O'Reilly Manufacturing sold 445,000 units of its product for $ 60 per unit in 2017.

Variable cost per unit is $ 48 and total fixed costs are 1,780,000

.

Requirement 1. Calculate(a) contribution margin and(b) operating income.

(a) Determine the formula used to calculate the contribution margin.

---------------------------- minus ------------------------ = contribution margin

1.

Calculate (a) contribution margin and (b) operating income.

2.

O'Reilly's current manufacturing process is labor intensive. Kate Wagner, O'Reilly's production manager, has proposed investing in state-of-the-art manufacturing equipment, which will increase the annual fixed costs to $ 5 comma 785 comma 000. The variable costs are expected to decrease to $ 32 per unit. O'Reilly expects to maintain the same sales volume and selling price next year. How would acceptance of Wagner's proposal affect your answers to (a) and (b) in requirement 1?

3.

Should O'Reilly accept Wagner's proposal? Explain.