WAND VO SECTION B - OPEN QUESTIONS Note: ALL 2 questions are compulsory and MUST be attempted. Each question worth 40 marks (Total 80 marks). Problem 1: Frieden Company's contribution format income statement for the most recent month is given below: Sales (40,000 units) $820'000 Variable expenses 540'000 Contribution margin 280 000 Fixed expenses 200'000 $ 80'000 Net operating income The industry in which Frieden Company operates is quite sensitive to cyclical movement in the economy. Thus, profits vary considerably from year to year according to general economi conditions. The company has a large amount of unused capacity and is studying ways a improving profits Required: 1. New equipment has come on the market that would allow Frieden Company automate a portion of its operations. Variable costs would be reduced by S7 per unit. Howev fixed costs would increase to a total of $500,000 per month. Prepare two contribution form income statements, one showing present operations and one showing how operations won appear if the new equipment is purchased. Show an Amount column, a Per Unit column, an Percent column on each statement. Do not show percentages for the fixed costs (10 marl 2. Refer to the income statements in (1) above. For both present operations and proposed new operations, compute (a) the degree of operating leverage. (b) the break-even p in dollars, and (e) the margin of safety in both dollar and percentage terms (10 mar 3. Refer again to the data in (1) above. As a manager, what factor would be paramour your mind in deciding whether to purchase the new equipment? (You may assume that ar funds are available to make the purchase. (5 ma 4. Refer to the original data. Rather than purchase new equipment, the marki manager argues that the company's marketing strategy should be changed. Instead of pe sales commissions, which are included in variable expenses, the marketing manager sug that salespersons be paid fixed salaries and that the company invest heavily in advertising marketing manager claims that this new approach would increase unit sales by 55% withou change in selling price, the company's new monthly fixed expenses would be $250,000, a net operating income would increase by 25%. Compute the break-even point in dollar sal the company under the new marketing strategy. Do you agree with the marketing man proposal? (15 m . 110 SECTION B - OPEN QUESTIONS Notet ALL 2 questions are compulsory and MUST be attempted. Each question worth 40 marks (Total 80 marks). Problem i: Frieden Company's contribution format income statement for the most recent month is given below: Sales (40,000 units) 5820'000 540'000 Variable expenses Contribution margins 280 000 Fixed expenses 200'000 S 80 000 Net operating income The industry in which Frieden Company operates is quite sensitive to cyclical movement in the economy. Thus, profits vary considerably from year to year according to general economi conditions. The company has a large amount of unused capacity and is studying ways o improving profits. Resuired: 1. New equipment has come on the market that would allow Frieden Company automate a portion of its operations. Variable costs would be reduced by 57 per unit. Howev fixed costs would increase to a total of $500,000 per month. Prepare two contribution form income statements, one showing present operations and one showing how operations wou appear if the new equipment is purchased. Show an Amount column, a Per Unit column, an Percent column on each statement. Do not show percentages for the fixed costs (10 marl 2. Refer to the income statements in (1) above. For both present operations and proposed new operations, compute(a) the degree of operating leverage. (b) the break-even pl in dollars, and (c) the margin of safety in both dollar and percentage terms (10 mar 3. Refer again to the data in (1) above. As a manager, what factor would be paramour your mind in deciding whether to purchase the new equipment? (You may assume that ar funds are available to make the purchase. 4. Refer to the original data. Rather than purchase new equipment, the mark manager argues that the company's marketing strategy should be changed. Instead of px sales commissions, which are included in variable expenses, the marketing manager sug that salespersons be paid fixed salaries and that the company invest heavily in advertising marketing manager claims that this new approach would increase unit sales by 55% withou change in selling price, the company's new monthly fixed expenses would be $250,000, a net operating income would increase by 25%. Compute the break-even point in dollar sal the company under the new marketing strategy. Do you agree with the marketing man proposal? (15 m (5 ma
