Morton Company’s contribution format income statement for lastmonth is given below:

Sales (44,000 units × $22 perunit)	$	968,000
Variable expenses		677,600
Contribution margin		290,400
Fixed expenses		232,320
Net operating income	$	58,080

The industry in which Morton Company operates is quite sensitiveto cyclical movements in the economy. Thus, profits varyconsiderably from year to year according to general economicconditions. The company has a large amount of unused capacity andis studying ways of improving profits.

Required:

1. New equipment has come onto the market that would allowMorton Company to automate a portion of its operations. Variableexpenses would be reduced by $6.60 per unit. However, fixedexpenses would increase to a total of $522,720 each month. Preparetwo contribution format income statements, one showing presentoperations and one showing how operations would appear if the newequipment is purchased. (Round your "Per unit" answers to 2decimal places.)

	Morton Company Contribution Income Statement Present Proposed Amount Per Unit % Amount Per Unit % % % % % 0 $0.00 0 % 0 $0.00 0 % $0 $0

2.Refer to the income statements in (1) above. For both presentoperations and the proposed new operations, compute

a. The degree of operating leverage.

	Present Proposed Degree of operating leverage

b. The break-even point in dollar sales.

	Present Proposed Break-even point in dollar sales

c. The margin of safety in both dollar and percentage terms.

	Present Proposed Margin of safety in dollar sales Margin of safety in percentage % %

3. Refer again to the data in (1) above. As a manager, whatfactor would be paramount in your mind in deciding whether topurchase the new equipment? (Assume that enough funds are availableto make the purchase.)

a)	Stock level maintained
b)	Performance of peers in theindstry
c)	Reserves and surplus of thecompany
d)	Cyclical movements in theeconomy

4. Refer to the original data. Rather than purchase newequipment, the marketing manager argues that the company’smarketing strategy should be changed. Rather than pay salescommissions, which are currently included in variable expenses, thecompany would pay salespersons fixed salaries and would investheavily in advertising. The marketing manager claims this newapproach would increase unit sales by 50% without any change inselling price; the company’s new monthly fixed expenses would be$290,400, and its net operating income would increase by 25%.Compute the break-even point in dollar sales for the company underthe new marketing strategy.

	New break even point in dollar sales