Morton Company\'s contribution format income statement for last month is given b

Question

Morton Company's contribution format income statement for last month is given below Sales (49,000 units × $25 per unit) Variable expenses $1,225,000 857,500 Contribution margin Fixed expenses 367,500 294,000 Net operating income $ 73,500 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 $7.50 per unit. However, fixed expenses would increase to a total of $661,500 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 your "Per unit" answers to 2 decimal places.) Morton Company Contribution Income Statement Present Proposed Amount Per Unit Amount Per Unit Sales Variable expenses Contribution margin Fixed expenses Net operating income 25.00 17.50 7.50 100% 40 % 60 % $ 1,225,000 $ 100 % $ 1,225,000$ 25.00 10.00 15.00 490,000 735,000 $ 661,500 73,500 70% 857,500 367,500 $ 294,000 73,500 30 % 2. Refer to the income statements in (1) above. For both present operations and the proposed new operations, compute a. The degree of operating leverage Present Proposed Degree of operating leverage

Explanation / Answer

part 1 correct!

Part 2 : Operating leverage = Contribution margin ratio

Present = 30%

Proposed = 60%

part 3: Breakeven sales = fixed expenses / Contribution margin ratio

Present = 294,000 / 30% = 980,000

Proposed = 661,500 / 60% = 1,102,500

part 4: Margin of safety = sales - breakeven sales / sales

Present in $ = 1,225,000 - 980,000 = 245,000

present = 1,225,000 - 980,000 / 1,225,000 = 20%

Proposed in $ = 1,225,000 - 1,102,500 = 122,500

Proposed in %age = 1,225,000 - 1,102,500 / 1,225,000 = 10%

Please upload other parts separately.

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