80.2K

Verified Solution

Link Copied!

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 (c) the margin of safety in both dollar and percentage terms. 3-a. Calculate the unit sales per month at which Frieden management will be indifferent between doing the major upgrade to the manufacturing equipment and not doing the upgrade. 3-b. Based on the above analysis, should Frieden proceed with the major upgrade? Problem 4-27 Changes in Cost Structure; Break-Even Analysis; Operating Leverage; Margin of Safety [LO4, LO5, LO6, LO7, LO8] Frieden Company's contribution format income statement for last month is shown below: Competition is intense, and Frieden Company's profits vary considerably from one year to the next. Management is exploring opportunities to increase profitability. Required: 1. Frieden's management is considering a major upgrade to the manufacturing equipment, which would result in fixed expenses increasing by $465,000 per month. However, vatiable expenses would decrease by $15 per unit. Seling price wouid not change. Prepare two contribution format income stotements, 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. 3-b. Based on the above analysis, should Frieden proceed with the major upgrade? Yes No 3-c. Why or why not? 4-a. Refer to the original dota, Instead of doing the major upgrade to the equipment, management is considering introducing a aew increase monthly unit sales by 15%, in this case what would be imapact on operating inconent 4-a. Refer to the original data. Instead of doing the major upgrade to the equipment, management is considering introducing a new advertising campaign that will increase fixed expenses by $45,000 per month. Management believes the new advertisements will increase monthly unit sales by 15%. In this case what would be imapact on operating income. 4-b. Should Frieden proceed with the new advertising campoign? Yos No

Answer & Explanation Solved by verified expert

See Answer