Morton Company’s contribution format income statement for last month is given below: Sales (43,000 units × $29 per unit) $ 1,247,000 Variable expenses 872,900 Contribution margin 374,100 Fixed expenses 299,280 Net operating income $ 74,820 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. 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 claims this new approach would increase unit sales by 30% without any change in selling price; the company’s new monthly fixed expenses would be $639,711; 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 (43,000 units × $29 per unit) | $ | 1,247,000 | |
| Variable expenses | 872,900 | ||
| Contribution margin | 374,100 | ||
| Fixed expenses | 299,280 | ||
| Net operating income | $ | 74,820 | |
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.
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 claims this new approach would increase unit sales by 30% without any change in selling price; the company’s new monthly fixed expenses would be $639,711; and its net operating income would increase by 20%. Compute the company's break-even point in dollar sales under the new marketing strategy.
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