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5 Problem 5-29 Changes in Cost Structure; Break-Even Analysis: Operating Leverage; Margin of Safety (L05-4, LO5-5, LO5-7, LO5-8] Morton Company's contribution format income statement for last month is given below: Sales (40.000 units: 522 per unit) Variable expenses Contribution aren Fixed expenses Net operating in code BO,000 616.00 264.000 211,200 $ ences 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 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 56 60 per unit. However, food expenses would increase to a total of $475 200 each month Prepare two contribution format income statements, one showing present operations and one showing how operations would appear the new equipment is purchased 2. Refer to the income statements in (1). For the present operations and the proposed new operations compute() 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 (T). 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 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 meeting manager calms this new approach would increase unis sales by 30% without any change in selling price, the company's new monthly fed expenses would be 5394 240, and its net operating income would increase by 20% Compute the company's break-ever point in collar sales under the new marketing strategy Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required Required Refer to the original data. Rather than purchase new equipment, the marketing Manager are that the company marketing strategy should be changed aer than pay sales comision which are creatly included expen the company would pay salesperson fed salaries and would invent heavily in advertising. The marketing manager dans this new approach would increase unit sales by 30% without any change in solling to the company's wronthly Mixed expenses would be $394,240, and its net operating Income would increase by 20. Corrate the compar even point in dollar sales under the new marketing strategy. (Higure out the new variable coton by pro then contribution format incomment) (Do not round in de calitation found your dollar amount Is Nebook avenporting Required 1 Required 2 Required 3 Required 4 Refer to the income statements in (1). For the present operations and the proposed now operations, compute (a) the degree of operating leverage (b) the break even point in dollar ols, and the margin of safety in dollars and the margin of safety percentage (Do not round Intermediate calculations, Round your percentage answers to 2 decimal places (.e.1234 should beuntered a 17 341) Show less Present Proposed Degree of operating leverage 6 Brokven point in dolor sale e Margin of neyin dollar Moron of sofety in percento Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Refor 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.) @Cydical movements the economy Reserves and surplus of the company Porformance of Doors in tho industry Stock level maintained Required 1 Required2 Required Required 4 Refer to the original data. Rather than purchase ng 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 oxpenses 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 $394,240; 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 worlable cost per unit by Ruring the new contribution format Income statement) (Do not Yound Intermediate calculations Round your answer to the neemt whole dollar amount) Show less New brook even point in dollar solos