6 Problem 4-27 Changes in Cost Structure; Break-Even Analysis: Operating Leverage; Margin of Safety [LO4, LOS, LO6, LO7, LOS) Frieden Company's contribution format income statement for fast month is shown below: 16 DO Sales (35,000 units Variable Contribution wargi $700,000 40.000 310.00 109,000 $21.00 Operating Income Competition is intense, and Frieden Company profits vary considerably from one year for the nest Management sporing opportunities to increase profitability Required: 1. Frieden's management is considering a major upgrade to the manufacturing equipment, which would lined expenses increasing by 5210.000 per month. However, variable expenses would decrease by S6 per unit Selling price would not change Prepare two contribution format income statements, one showing current operations and one showing how operations would appear it the upgrade is completed. Show an Amount columna Pe Unit column, and a percentage column on each statement FREDEN COMPANY Contribution Marine ment Proposed Per Un Amount 300.000 5 100.000 100005 201 14 Am TOS 700 000 70 Saved increasing by $270,000 per month. However, variable expenses would decrease by $6 per unit. Selling price would not change. Prepare two contribution format income statements, one showing current operations and one showing how operations would appear if the upgrade is completed. Show an Amount column, a Per Unit column, and a Percentage column on each statement s Sales Variable expenses Contribution margin Fred expenses Operating income FRIEDEN COMPANY Contribution Margin income Statement Present Proposed Amount Per Unit Amount Per Unit 700.000 20 100 s 700,000 490.000 14 70 210.000 $ 30 700.000 $ 199 000 21.000 $ 700.000 0 0 $ 2. Refer to the income statements in requirement 1 above. For both current operations and the proposed new operations compute(a) the degree of operating leverage. (b) the break even point in dollars, and the margin of safety in both dollar and percentage terms Proposed Det oportung leverage Import in das Monte das Mountain percentage