Question II: Cost '0'qu me and Profit [CUP] Analysis The following information is ta ken from Bailey Limited's contribution format income statement for the most recent month: Sales [d units $3, IIul'ariable expenses 593,090 240.090 191.000 543.090 Eiailey Limited operates in an industry that is highly sensitive to economic cyclical movements. Prots vary greatly from year to year depending on general economic conditions. There is a lot of unused capacity at the company, and the company is looking for ways to improve prots. Required 1. There is new equipment on the market that could allow Bailey Limited to automate a portion of its operations. It would reduce variable costs by 56 per unit. The fixed costs would however increase to a total of $432,0 each month. Using proper format, prepare two contribution format income statements, one reecting current operations and one reecting operations if the new equipment were purchased. In each statement, you should include a column for Amount, a column for Per Unit, and a column for Percentage. Please do not include percentages for fixed costs. 2. Refer to the income statements in [1} above. As part of both present operations and planned new operations, compute {a} the degree of operating leverage, [b] the breakeven point in dollars, and {c} the margin of safety both in terms of dollar amounts and in terms of percentages. 3. Referto {1] above once again. In your role as a manager, what factors are going to be the most important one in deciding whether or not to purchase the new equipment? 'I'ou may assume that there are sufficient funds available to make this purchase. 4. Please refer to the original data. The marketing manager argues that the company should change its marketing strategy rather than purchase new equipment. As an alternative to paying commissions on sales, which are included in variable expenses, the marketing manager suggests to the company that salespeople he paid xed salaries and more investments he made in advertisement. According to the marketing manager, the new approach would increase unit sales try 509-5 without changing the price; the company's fixed expenses would increase by $240,000; and its net operating income would rise by 15%. Calculate the breakeven point in dollar sales for the company based on the new marketing strategy. Would you agree with what the marketing manager proposed? Why or why not?l