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Question \#2: Change in Cost Structure; BE Analysis, Operating Leverage, MOS...

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Question \#2: Change in Cost Structure; BE Analysis, Operating Leverage, MOS Morton Company's contribution format income statement for last month is given below: The industry is sensitive to cyclical movements in the economy, thus, profits vary considerably from year to year. The company tos a large amount of unused capacity and is considering options to improve profits Required: 1. New equipment would aliew Miorton Company to automate a portion of its operations. Variable expenses wouid be zedused by $9 per unit. Variable Expense/unit = However, fixed expenses wouic insraase to a total of $225,000 each month, Fixed Expenses = Prepare two contribution format income statements (in template below), one showing present operations and one showing operations if the new equipment is purchased. 2. For the present operations and the proposed new operations, compute (a) the degree of operating leverage (for both scenarios) (b) the break-even point in dollar sales (for both scenarios) (c) the margin of safety in doliars and the margin of safety percentage (for both scenarios)

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