Problem 5-29 Changes in Cost Structure; Break-Even Analysis; Operating Leverage; A [LO5-4, L05-5, L05-7, L05-8] Morton Company's contribution format income statement for last month is given below: Sales (44,000 units * $24 per unit) Variable expenses Contribution margin Fixed expenses Net operating income $ 1,056,00 739,200 316,800 253,440 63,360 The industry in which Morton Company operates is quite sensitive to cyclical movements in the economy. Thus, profit considerably from year to year according to general economic conditions. The company has a large amount of unuset 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. expenses would be reduced by S720 per unit. However, fixed expenses would increase to a total of $570,240 each mor two contribution format income statements, one showing present operations and one showing how operations would api new equipment is purchased 2. Refer to the income statements in (1). For the present operations and the proposed new operations, compute (a) the deg operating leverage. (b) the break-even point in dollar sales and the margin of safety in dollars and the margin of safety 3. Refer again to the data in (t). As a manager, what factor would be paramount in your mind in deciding whether to purchas 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 marke strategy should be changed. Rather than pay sales commissions, which are currently included in variable expenses, the com would pay salespersons foed salaries and would invest heavily in advertising. The marketing manager claims this new appro Increase unit sales by 30% without any change in selling price, the company's new monthly fixed expenses would be $473,08 net operating income would increase by 20% Compute the company's break-even point in dollar sales under the new market strategy Complete this question by entering your answers in the tabs below. Required Required 2 Required Required new equipment has come onto the market that would allow Motion Company to automate a portion of its operations. Variable expenses would be reduced by $7.20 per unit. However, fed increase to a total of $370.240 each month Prepare two contribution format income statements on showing restorations and one showing how onerations would Syne here to search 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 it expenses would be reduced by $7.20 per unit. However, fixed expenses would increase to a total of $570 Prepare two contribution format income statements, one showing present operations and one showing ha appear if the new equipment is purchased. (Round "Per Unit" to 2 decimal places.) Morton Company Contribution Income Statement Present Amount Per Unit Proposed Amount Por Unit 0 $ 0.00 0 $ 0.00 0 Required 2 > ces Refer to the income statements in (1). For the present operations and the proposed new oper of operating leverage, (b) the break-even point in dollar sales, and (c) the margin of safety in percentage. (Do not round intermediate calculations. Round your percentage answers to 2 de be entered as 12.34).) Present Proposed a. Degree of operating leverage b. Break-even 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 the new equipment? (Assume that enough funds are available to ma Cyclical movements in the economy Reserves and surplus of the company Performance of peers in the industry Stock level maintained Required 2 RO 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 fixed expenses would be 5473,088; and its net operating income would increase by 20%. Compute the company's break-even point in dollar sales under the new marketing strategy. (Hint: figure out the new variable cost per unit by preparing the new contribution format income statement. (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount) Show less Nwbreak even point in dollar sales