Frieden Company's contribution format income statement for the most recent month is given below: Sales $ 1,189,000 Variable expenses 832,300 Contribution margin 356,700 Fixed expenses 285,360 Net operating income $ 71,340 Required: 1. New equipment has come on the market that would allow Frieden Company to automate a portion of its operations. Variable expenses would be reduced by $8.70 per unit. However, fixed expenses would increase to a total of $642,060 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.
Refer to the original data. Rather than purchase new equipment, the marketing manager argues that the company's marketing strategy should be changed. Instead of paying sales commissions, which are included in variable expenses, the marketing manager suggests that salespersons be paid fixed salaries and that the company invest heavily in advertising. The marketing manager claims that this new approach would increase unit sales by 50% without any change in selling price; the company's new monthly fixed expenses would be $356,700; and its net operating income would increase by 25%. Compute the break-even point in dollar sales for the company under the new marketing strategy.