Whirly Corporation's contribution format income statement for the most recent month is shown below: Per Unit $31.00 19.00 Total $ 279,000 171,000 Sales (9,000 units) Variable expenses $ 12.00 Contribution margin 108,000 Fixed expenses 55,500 52,500 Net operating income Required: (Consider each case independently): 1. What would be the revised net operating income per month if the sales volume increases by 80 units? 2. What would be the revised net operating income per month if the sales volume decreases by 80 units? 3. What would be the revised net operating income per month if the sales volume is 8,000 units? 1. Revised net operating income 2. Revised net operating income Revised net operating income 3 Required information Exercise 2-5 (Algo) Changes in Variable Costs, Fixed Costs, Selling Price, and Volume [LO2-4] [The following information applies to the questions displayed below.] Data for Hermann Corporation are shown below Percent of Sales Per Unit Selling price Variable expenses $70 49 100% 70 $ 21 Contribution margin 30% Fixed expenses are $74,000 per month and the company is selling 4,400 units per month. Exercise 2-5 (Algo) Part 1 ?equired: -a. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $9,800 and nonthly sales increase by $24,000? -b. Should the advertising budget be increased? Complete this question by entering your answers in the tabs below. Req 1A Req 1B How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $9,800 and monthly sales increase by $24,000? (Do not round intermediate calculations.) by Net operating income Required information Exercise 2-5 (Algo) Changes in Variable Costs, Fixed Costs, Selling Price, and Volume [LO2-4] [The following information applies to the questions displayed below.] Data for Hermann Corporation are shown below Percent of Per Unit $ 70 49 Sales 100% Selling price Variable expenses 70 Contribution margin $21 30% Fixed expenses are $74,000 per month and the company is selling 4,400 units per month Exercise 2-5 (Algo) Part 1 Required: 1-a. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $9,800 and monthly sales increase by $24,000? 1-b. Should the advertising budget be increased? Complete this question by entering your answers in the tabs below. Req 1A Req 1B Should the advertising budget be increased? OYes No Required information Exercise 2-5 (Algo) Changes in Variable Costs, Fixed Costs, Selling Price, and Volume [LO2-4] [The following information applies to the questions displayed below.] Data for Hermann Corporation are shown below: Percent of Per Unit $ 70 49 Sales Selling price Variable expenses 1008 70 Contribution margin $21 30% Fixed expenses are $74,000 per month and the company is selling 4,400 units per month. Exercise 2-5 (Algo) Part 2 2-a. How much will net operating income increase (decrease) per month if the company uses the variable expense by $4 per unit and increase unit sales by 25%. 2-b. Should the higher-quality components be used? higher-quality components that increase Complete this question by entering your answers in the tabs below. Req 2A Req 2B How much will net operating income increase (decrease) per month if the company uses higher-quality components that increase the variable expense by $4 per unit and increase unit sales by 25%. Net operating income by Required information Exercise 2-5 (Algo) Changes in Variable Costs, Fixed Costs, Selling Price, and Volume [LO2-4] [The following information applies to the questions displayed below.] Data for Hermann Corporation are shown below: Percent of Per Unit $ 70 Sales Selling price Variable expenses 100% 70 49 Contribution margin $ 21 30% Fixed expenses are $74,000 per month and the company is selling 4,400 units per month Exercise 2-5 (Algo) Part 2 2-a. How much will net operating income increase (decrease) per month if the company uses higher-quality components that increase the variable expense by $4 per unit and increase unit sales by 25%. 2-b. Should the higher-quality components be used? Complete this question by entering your answers in the tabs below. Req 2A Req 2B Should the higher-quality components be used? Yes No Lin Corporation has a single product whose selling price is $135 per unit and whose variable expense is $81 per unit. The company's monthly fixed expense is $23,700. Required: 1. Calculate the unit sales needed to attain a target profit of $6,000. (Do not round intermediate calculations.) 2. Calculate the dollar sales needed to attain a target profit of $9,300. (Round your intermediate calculations to the nearest whole number.) Units sales to attain target profit 2. Dollar sales to attain target profit Engberg Company installs lawn sod in home yards. The company's most recent monthly contribution format income statement follows: Percent of Sales Amount $ 139,000 55,600 Sales 100% Variable expenses 40% Contribution margin 60% 83,400 Fixed expenses 22,000 $61,400 Net operating income Required: 1. What is the company's degree of operating leverage? 2. Using the degree of operating leverage, estimate the impact on net operating income of a 13% increase in sales. 3. Constructa new contribution format income statement for the company assuming a 13% increase in sales. Complete this question by entering your answers in the tabs below. Required 2 Required 1 Required 3 What is the company's degree of operating leverage? (Round your answer to 2 decimal places.) Degree of operating leverage Engberg Company installs lawn sod in home yards. The company's most recent monthly contribution format income statement follows: Percent of Sales 100 Amount $ 139,000 55,600 Sales Variable expenses 40% Contribution margin 60% 83,400 Fixed expenses 22,000 $61,400 Net operating income Required: 1. What is the company's degree of operating leverage? 2. Using the degree of operating leverage, estimate the impact on net operating income of a 13% increase in sales. 3. Constructa new contribution format income statement for the company assuming a 13% increase in sales. Complete this question by entering your answers in the tabs below. Required 2 Required 3 Required 1 Using the degree of operating leverage, estimate the impact on net operating income of a 13% increase in sales. (Round your intermediate calculations to 2 decimal places. Round your percentage answer to 2 decimal places (i.e .1234 should be entered as 12.34).) Net operating income by Engberg Company installs lawn sod in home yards. The company's most recent monthly contribution format income statement follows: Percent of Sales Amount 1008 40% Sales $139,000 55,600 Variable expenses 60% Contribution margin 83,400 Fixed expenses 22,000 $61,400 Net operating income Required: 1. What is the company's degree of operating leverage? 2. Using the degree of operating leverage, estimate the impact on net operating income of a 13% increase in sales. 3. Construct a new contribution format income statement for the company assuming a 13% increase in sales. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Construct a new contribution format income statement for the company assuming a 13% increase in sales. Engberg Company Contribution Income Statement Percent of Sales Amount % Morton Company's contribution format income statement for last month is given below: Sales (47,000 units x $28 per unit) Variable expenses Contribution margin Fixed expenses $ 1,316,000 921,200 394,800 315,840 $ 78,960 Net operating income 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 is 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 $8.40 per unit. However, fixed expenses would increase to a total of $710,640 each month. Prepare two contribution format income statements, one showing present operations and one showing how operations would appear if the new equipment is purchased. 2. Refer to the income statements in (1). For the present operations and the proposed new operations, compute (a) 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 (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.) 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 $675,108; and its net operating income would increase by 20%. Compute the company's break-even point in dollar sales under the new marketing strategy. 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 $8.40 per unit. However, fixed expenses would increase to a total of $710,640 each month. Prepare two contribution format income statements, one showing present operations and one showing how operations would appear if the new equipment is purchased. 2. Refer to the income statements in (1). For the present operations and the proposed new operations, compute (a) 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 (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.) 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 changee in selling price; the company's new monthly fixed expenses would be $675,108; and its net operating income would increase by 20%. Compute the company's break-even point in dollar sales under the new marketing strategy Complete this question by entering your answers in the tabs below. Required 4 Required 1 Required 2 Required 3 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 $8.40 per unit. However, fixed expenses would increase to a total of $710,640 each month. Prepare two contribution format income statements, one showing present operations and one showing how operations would appear if the new equipment is purchased. (Round "Per Unit" to 2 decimal places.) Show less A Morton Company Contribution Income Statement Present Proposed Amount Per Unit % Amount Per Unit % % % % 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 $8.40 per unit. However, fixed expenses would increase to a total of $710,640 each month. Prepare two contribution format income statements, one showing present operations and one showing how operations would appear if the new equipment is purchased. 2. Refer to the income statements in (1). For the present operations and the proposed new operations, compute (a) 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 (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.) 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 $675,108; and its net operating income would increase by 20%. Compute the company's break-even point in dollar sales under the new marketing strategy. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 4 Required 3 Refer 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.) Cyclical movements in the economy Reserves and surplus of the company Performance of peers in the industry Stock level maintained KRequired 2 Required 4 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 $8.40 per unit. However, fixed expenses would increase to a total of $710,640 each month. Prepare two contribution format income statements, one showing present operations and one showing how operations would appear if the new equipment is purchased. 2. Refer to the income statements in (1). For the present operations and the proposed new operations, compute (a) 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 (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.) 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 $675,108; and its net operating income would increase by 20%. Compute the company's break-even point in dollar sales under the new marketing strategy. 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 $675,108; and its net operating income would increase by 20%. Compute the company's break-even point in dollar sales under the new marketing strategy. (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.) Show less A New break even point in dollar sales