Morton Company's contribution format income statement for last month is given below. Sales (47,000 units M...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Morton Company's contribution format income statement for last month is given below. Sales (47,000 units M $28 per unit) Variable expenses Contribution margin Fixed expenses $1,316,000 921, 200 394,800 315,840 Net operating incone 78,960 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. Variabie 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 ciaims this new approach would increase unit sales by 30% without any change in seling 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. Morton Company's contribution format income statement for last month is given below. Sales (47,000 units M $28 per unit) Variable expenses Contribution margin Fixed expenses $1,316,000 921, 200 394,800 315,840 Net operating incone 78,960 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. Variabie 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 ciaims this new approach would increase unit sales by 30% without any change in seling 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.
Expert Answer:
Related Book For
Statistics for Business and Economics
ISBN: 978-0132930192
8th edition
Authors: Paul Newbold, William Carlson, Betty Thorne
Posted Date:
Students also viewed these accounting questions
-
Deckyard Company distributes a lightweight lawn chair that sells for $72 per unit. Variable expenses are $36.00 per unit, and fixed expenses total $219,000 annually. Required: 1. What is the...
-
Robertson State Bank decides to loan a portion of its reserves in the amount of $70 million held at the Federal Reserve Bank to Tenison National Security Bank for 24 hours. For its part, Tenison...
-
Complete each of the following contribution format income statements by supplying the missingnumbers. $450,000 $600,000 Sales revenue Variable expenses Contribution margin Fixed expenses Operating...
-
Which of the following represents the GREATEST risk created by a reciprocal agreement for disaster recovery made between two companies? A. Developments may result in hardware and software...
-
Scotiabank approved a $75,000 line of credit for Curved Comfort Furniture on the security of its accounts receivable. Curved Comfort drew down $30,000 on October 7, another $15,000 on November 24,...
-
An oil preheater consists of a single tube of \(10-\mathrm{mm}\) diameter and 5-m length, with its surface maintained at \(180^{\circ} \mathrm{C}\) by swirling combustion gases. The engine oil (new)...
-
Some of the mathematical steps in Example 5.2 are omitted. Derive Eqs. (5.14), (5.17), and (5.18). Data From Example 5.2:- Figure 5.10:- Data From Eqs. 5.14 , 5.17, and 5.18:- Herbicides such as...
-
Arma Company sells equipment on September 30, 2014, for $20,000 cash. The equipment originally cost $72,000 and as of January 1, 2014, had accumulated depreciation of $42,000. Depreciation for the...
-
Head-First Company plans to sell 5,120 bicycle helmets at $74 each in the coming year. Unit variable cost is $45 (includes direct materials, direct labor, variable factory overhead, and variable...
-
Which series has the highest beta. BraveNewCoin Liquid Index for Bitcoin 1D BNC Trading Brave Ne Yellow Green Blue Orange
-
Every client brings a unique set of circumstances to the table, which a paralegal as part of the estate-planning team must help analyze. This assignment, you will be given a set of stories and asked...
-
Ms. Deepika has been supervising eight accounting clerks in the budget and planning department of a paper company, namely ABC Paper Mills. Assam. Though none of the clerks had earned certificate in...
-
A payment of $20800 is to be made every year for 15 years. The first payment occurring is one year's time. The interest rate is 7%. What is the PV of the annuity?
-
Part A: Seasonal changes in freeze tolerance and cryoprotectants The wood frog, Rana sylvatica, is a largely terrestrial frog species that is found from the Southern Appalachians to the Arctic...
-
An Owner approaches you for help in deciding on buying property (land) for a new building. He's not sure if the idea is economically feasible. What sort of estimate could you prepare for him? How...
-
Calculate a firm's WACC, given that the total value of the firm is $2,000,000, $600,000 of which is debt, the costs of debt and equity are 10% and 15% respectively, and the firm pays no taxes.
-
Member BD exerts on member ABC a force P directed along line BD. Force P must have a 345-lb horizontal component. A 0 C B 35 D Determine the vertical component of the force. The magnitude of the...
-
Kenneth Hubbard has prepared the following list of statements about managerial accounting and financial accounting. 1. Financial accounting focuses on providing information to internal users. 2....
-
A salesperson receives an annual salary of $6,000 plus 8% of the value of the orders she takes. The annual value of these orders can be represented by a random variable with a mean of $600,000 and a...
-
A video-rental chain estimates that annual expenditures of members on rentals follow a normal distribution with a mean of $100. It was also found that 10% of all members spend more than $130 in a...
-
Batches of chemical are manufactured by a production process. Samples of 20 batches from a production run are selected for testing. If the standard deviation of the percentage of impurity contents in...
-
Discuss each of the theoretical change models introduced in this chapter. How can we use them when planning an HRIS implementation to increase our chances of success?
-
The Grant Corporation is a financial services firm based in Chicago, Illinois. Its revenue exceeded \($1\) billion last year, producing a net income of \($530\) million. It has just over 1,000...
-
Analyze the main reasons for HRIS implementation failure. How can we prevent these from affecting us?
Study smarter with the SolutionInn App