Question

In: Accounting

Morton Company’s contribution format income statement for last month is given below: Sales (41,000 units ×...

Morton Company’s contribution format income statement for last month is given below: Sales (41,000 units × $20 per unit) $ 820,000 Variable expenses 574,000 Contribution margin 246,000 Fixed expenses 196,800 Net operating income $ 49,200 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 $6.00 per unit. However, fixed expenses would increase to a total of $442,800 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 $314,060; and its net operating income would increase by 20%. Compute the company's break-even point in dollar sales under the new marketing strategy.

Solutions

Expert Solution


Related Solutions

Morton Company’s contribution format income statement for last month is given below: Sales (41,000 units ×...
Morton Company’s contribution format income statement for last month is given below: Sales (41,000 units × $29 per unit) $ 1,189,000 Variable expenses 832,300 Contribution margin 356,700 Fixed expenses 285,360 Net operating income $ 71,340 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....
Morton Company’s contribution format income statement for last month is given below: Sales (15,000 units ×...
Morton Company’s contribution format income statement for last month is given below: Sales (15,000 units × $30 per unit) $ 450,000 Variable expenses 315,000 Contribution margin 135,000 Fixed expenses 90,000 Net operating income $ 45,000 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....
Morton Company’s contribution format income statement for last month is given below: Sales (43,000 units ×...
Morton Company’s contribution format income statement for last month is given below: Sales (43,000 units × $23 per unit) $ 989,000 Variable expenses 692,300 Contribution margin 296,700 Fixed expenses 237,360 Net operating income $ 59,340 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....
Morton Company’s contribution format income statement for last month is given below: Sales (43,000 units ×...
Morton Company’s contribution format income statement for last month is given below: Sales (43,000 units × $29 per unit) $ 1,247,000 Variable expenses 872,900 Contribution margin 374,100 Fixed expenses 299,280 Net operating income $ 74,820 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....
Morton Company’s contribution format income statement for last month is given below: Sales (47,000 units ×...
Morton Company’s contribution format income statement for last month is given below: Sales (47,000 units × $27 per unit) $ 1,269,000 Variable expenses 888,300 Contribution margin 380,700 Fixed expenses 304,560 Net operating income $ 76,140 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....
Morton Company’s contribution format income statement for last month is given below: Sales (49,000 units ×...
Morton Company’s contribution format income statement for last month is given below: Sales (49,000 units × $29 per unit) $ 1,421,000 Variable expenses 994,700 Contribution margin 426,300 Fixed expenses 341,040 Net operating income $ 85,260 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....
Morton Company’s contribution format income statement for last month is given below: Sales (48,000 units ×...
Morton Company’s contribution format income statement for last month is given below: Sales (48,000 units × $28 per unit) $ 1,344,000 Variable expenses 940,800 Contribution margin 403,200 Fixed expenses 322,560 Net operating income $ 80,640 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....
Morton Company’s contribution format income statement for last month is given below: Sales (42,000 units ×...
Morton Company’s contribution format income statement for last month is given below: Sales (42,000 units × $26 per unit) $ 1,092,000 Variable expenses 764,400 Contribution margin 327,600 Fixed expenses 262,080 Net operating income $ 65,520 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....
Morton Company’s contribution format income statement for last month is given below: Sales (47,000 units ×...
Morton Company’s contribution format income statement for last month is given below: Sales (47,000 units × $27 per unit) $ 1,269,000 Variable expenses 888,300 Contribution margin 380,700 Fixed expenses 304,560 Net operating income $ 76,140 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....
Morton Company’s contribution format income statement for last month is given below: Sales (44,000 units ×...
Morton Company’s contribution format income statement for last month is given below: Sales (44,000 units × $22 per unit) $ 968,000 Variable expenses 677,600 Contribution margin 290,400 Fixed expenses 232,320 Net operating income $ 58,080 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....
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT