Problem 5-29 Changes in Cost Structure; Break-Even Analysis; Operating Leverage; Margin of Safety [LO5-4, LO5-5, LO5-7, LO5-8] Morton Company's contribution format income statement for last month is given below. Sales (44,000 units - $28 per unit) Variable expenses Contribution margin Fixed expenses Net operating income $ 1,232,000 862,400 369,600 295,680 $ 73, 920 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 expenses would be reduced by $8.40 per unit. However, fixed expenses would increase to a total of $665,280 each month. Prepare two contribution format income statements, one showing present operations and one showing how operations would appear if the Check my work 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 break-even 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 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 $471,856, 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 New equipment has come onto the market that would allow Morton Company to automate a portion of its operations. Variable expenses would $8.40 per unit. However, fixed expenses would increase to a total of $665,280 each month. Prepare two contribution format income statement: present operations and one showing how operations would appear if the new equipment is purchased. (Round "Per Unit" to 2 decimal places.) 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 $8.40 per unit. However, fixed expenses would increase to a total of $665,280 each month. Prepare two contribution format income statemente present operations and one showing how operations would appear if the new equipment is purchased. (Round "Per Unit" to 2 decimal places.) Morton Company Contribution Income Statement Present Amount Per Unit Proposed Per Unit Amount 0.00 0 $ 0.00 0% Required 2 > Required 1 Required 2 Required 4 Required 3 Refer to the income statements in (1). For the present operations and the proposed neu of operating leverage, (b) the break-even point in dollar sales, and (c) the margin of sa percentage. (Do not round intermediate calculations. Round your percentage answers t be entered as 12.34).) Present Proposed a. Degree of operating leverage Break-even point in dollar sales c. Margin of safety in dollars Margin of safety in percentage Refer to the original data. Rather than purchase new equipment, the marketing man marketing strategy should be changed. Rather than pay sales commissions, which ar the company would pay salespersons fixed salaries and would invest heavily in adver this new approach would increase unit sales by 30% without any change in selling pr expenses would be $471,856; and its net operating income would increase by 20%. in dollar sales under the new marketing strategy. (Do not round intermediate calculat whole dollar amount.) New break even point in dollar sales