Situation for Analysis: Grayslake Novelty produces and sells a small novelty item through tourist shops in Chicago and other northern Illinois locations. Last year the company sold 198,400 units of one ofits products. The income statement for this product for last year is shown below: $992,000 545,600 446,400 180,000 $266,400 Sales Less: Variable Expenses Contribution Ma Less: Fixed Costs Net 0 I_eratin Income _in While this product has been protable, as shown in the above income statement, sales began falling near the end oflast year and have continued to decline this year. There is concern that new competitors are beginning to take market share from Grayslake Novelty. As a result of declining market share, Sarah Burroughs, the company president, has asked you to provide some information to assist her in making decisions about the company's strategy for this product. These alternatives should be evaluated individually. You are free and encouraged to offer your own alternative based on any of the parameters given in the data. Required: a. While the product is currently protable, the president wants to know the contribution margin and the breakeven in both units and dollars using last year's level of sales. Additionally, compute the margin ofsafety, margin of safety ratio, and degree of operating leverage based on last year's sales. b. One ofthe possible strategies [Alt 1] is to reduce the current price by 8%. Using last year's level ofsales, what is the new contribution margin and break-even in units and dollars based on the price reduction? Additionally, compute the margin of safety, margin of safety ratio, and degree of operating leverage based on last year's sales. c. A second strategy [Alt 2] is to reduce the current variable cost by 0.20 per unit. The company has identied available efciencies that can be implemented without any additional changes to the current cost. What is the new contribution margin and break-even in units and dollars based on the variable cost reduction of 0.20 per unit? Additionally, compute the margin of safety, margin ofsafety ratio, and degree of operating leverage based on last year's sales. d. A third strategy [Alt3] is to decrease the current price by 8% reduce the variable cost per unit by 0.20. What is the new contribution margin and break-even in units and dollars based on making both changes? Additionally, compute the margin of safety, margin of safety ratio, and degree of operating leverage based on last year's sales. e. A fourth strategy (Alt 4) under consideration is to invest in more automated equipment for the manufacturing process. This investment will reduce variable costs by 0.65 per unit, primarily reducing the direct labor. At the same time, this will increase the fixed costs by $50,000. What is the new contribution margin and break-even in units and dollars based on this change in operating structure? Additionally, compute the margin of safety, margin of safety ratio, and degree of operating leverage based on last year's sales. f. A final strategy (Alt 5) is to change the current structure for the company's sales person. The current fixed cost includes the salary of Grayslake's one sales person at $60,000 per year. The company's marketing study suggests that sales could be increased by 20% if the company hired an additional sales person; paid both individuals $40,000 fixed salaries; and a 0.25 commission per unit sold. What is the new contribution margin and break-even in units and dollars based on this change? Additionally, compute the margin of safety, margin of safety ratio, and degree of operating leverage based on last year's sales as the starting point for this change