Problem 2-29 (Algo) Changes in Cost Structure; Break-Even Analysis; Operating Leverage; Margin of Safety [L02-4, LUZ-5, LUZ-7, LUZ-8] Morton Company's contribution format income statement for last month is given below: Sales (ti-5,666 units X $24 per unit) $ 1,686,666 Variable expenses 356,666 Contribution margin 324,666 Fixed expenses 259,266 Net operating income $ 54,866 The industry in which Morton Company operates is quite sensitive to cyclical movements in the economy. Thus, prots vary considerably from yearto 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 ofits operations. Variable expenses would be reduced by $7.20 per unit. However, fixed expenses would increase to a total of $583,200 each month. Prepare two contribution format income statements. one showing present operations and one showing how operations would appear ifthe new equipment is purchased. 2. 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 breakeven point in dollar sales. and {c} the margin of safety in dollars and the margin ofsafety percentage. 3. 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} 4. Refer to the original data. Rather than purchase new equipment, the marketing manager argues thatthe company's marketing strategy should be changed. Rather than pay sales commissions, which are currently included in variable expenses, the company would pay salespersons xed 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 xed expenses would be $554,040; and its net operating income would increase by 20%. Compute the company's break-even point in dollar sales underthe new marketing strategy. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 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 xed expenses would be $554,040; 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.) Nau- bleak even point in dollar sale; :| ( Required 3 Show IessA Exercise 2-4 (Algal Computing and Using the CM Ratio [LUZ-3] Last month when Holiday Creations, Inc., sold 37,000 units, total sales were $314,000,tota| variable expenses were $229,220, and fixed expenses were $36,400. Required: 1. What is the company's contribution margin [CM] ratio? 2. What is the estimated change in the company's net operating income if it can increase total sales by $2,900? [Do not round intermediate calculations} '1. Contribution margin ratio 2. Estimated change in net operating income Problem 2-29 (Algol Changes in Cost Structure; Break-Even Analysis; Operating Leverage; Margin of Safety [L02-4, LO2-5. L02-7, LO2-8] Morton Company's contribution format income statement for last month is given below: Sales (45,000 units at $24 per unit) $ 1,080,000 Variable expenses "56,000 Contribution margin 324,000 Fixed expenses 259,200 Net operating income $ 54,800 The industry in which Morton Company operates is quite sensitive to cyclical movements in the economy. Thus, prots 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 expenses would be reduced by $120 per unit. However, fixed expenses would increase to a total of $583,200 each month. Prepare two contribution format income statements, one showing present operations and one showing how operations would appear ifthe new equipment is purchased. 2. Referto the income statements in {1). Forthe present operations and the proposed new operations, compute {a} the degree of operating leverage, {b} the breakeven point in dollar sales, and {c} the margin ofsafety in dollars and the margin of safety percentage. 3. 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.) 4. Referto 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 xed 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 xed expenses would be $554,040; and its net operating income would increase by 20%. Compute the company's breakeven point in dollar sales underthe new marketing strategy. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 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 $7.20 per unit. However, xed expenses would increase to a total of $583,200 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 less; Required 2 ) Problem 2-29 (Algo) Changes in Cost Structure; Break-Even Analysis; Operating Leverage; Margin of Safety [LUZ-4, L02-5, LUZ-7, LUZ-8] Morton Company's contribution format income statement for last month is given below: Sales (45,666 units x $24 per unit) $ 1,686,666 Variable expenses ?56,666 Contribution margin 324,666 Fixed expenses 259,266 Net operating income $ 54,866 The industry in which Morton Company operates is quite sensitive to cyclical movements in the economy. Thus, prots 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 expenses would be reduced by $7.20 per unit. However, fixed expenses would increase to a total of$583,200 each month. Prepare two contribution format income statements. one showing present operations and one showing how operations would appear ifthe new equipment is purchased. 2. 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 breakeven point in dollar sales. and {c} the margin ofsafety in dollars and the margin of safety percentage. 3. 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} 4. 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 xed expenses would be $554,040; and its net operating income would increase by 20%. Compute the company's break-even point in dollar sales underthe new marketing strategy. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 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. (Do not round inten'nediate calculations. Round your percentage answers to 2 decimal places (Le. .1234 should be entered as 12.34).) Degree of o peratin g levera ge Break-even point in dollar sales Margin of safety in dollars Margin of safety in percentage ( Required1 Required3 > Problem 2-29 (Algal Changes in Cost Structure; Break-Even Analysis; Operating Leverage; Margin of Safety [LUZ-4, L02-5. L02-7, LO2-8] Morton Company's contribution format income statement for last month is given below: Sales (45,666 units x $24 per unit) 3; 1,686,666 Variable expenses ?56,666 Contribution margin 324,666 Fixed expenses 259,266 Net operating income $ 64,866 I The industry in which Morton Company operates is quite sensitive to cyclical movements in the economy. Thus, prots 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 ofits operations. Variable expenses would be reduced by $7.20 per unit. However, fixed expenses would increase to a total of$583200 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. 2. 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 breakeven point in dollar sales. and {c} the margin of safety in dollars and the margin of safety percentage. 3. 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.) 4. 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 xed 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 $554,040; and its net operating income would increase by 20%. Compute the company's break-even point in dollar sales under the new marketing strategy. Complete this question by entering your answers in the tabs below. 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.) OCyclicel movements in the economy OReserves and surplus ofthe company OPerformance of peers in the industry OStook level maintained