0 edugenwileypluscom Arquitectos Interiores of Juarez Mexico

0 edugenwileyplus.com Arquitectos Interiores of Juarez, Mexico, is.. Help I Contact Us I L FINANCIAL AND MANAGERIAL ACCOUNTIN Chegg Study | Guided Solutions and Study H WileyPLUS THOME COMP WileyPLUS: MyWileyPLUSI Kimmel, Accounting: Tools for Business Decision Making, Se Assignment Gradebook ORION CALCULATOR FULL SCREEN PRINTER VERSION BACK xercise 19-15 rquitectos Interiores of Juarez, Mexico, is contemplating a major change in its cost structure. Currently, all of its drafting work is performed by skilled aftsmen. Alfonso Jiminez, Arquitectos\' owner, is considering replacing the draftsmen with a computerized drafting system. However, before making the hange, Alfonso would ike to know the consequences of the change, since the volume of business varies significantly from year to year. Shown below are CVP come statements for each alternative. Manual System Computerized System Sales Variable costs Contribution margin Fixed costs Net income $1,500,000 1,200,000 300,000 50,000 $250,000 $1,500,000 600,000 900,000 650,000 $250,000 Your answer is incorrect. Try again. Determine the degree of operating leverage for each alternative. (Round answers to 2 decimal places, eg, 12S) Manual System .20 Computerized System 60 Your answer is partially correct. Try again. Policy I 2000-2018 2ohn Wiley & Sons, Inc, All Rights Reserved. A Division of John Wiley &Senss; Version 4.24.6.2

Solution

Degree of Operating Leverage = Contribution margin/Net income

Manual System: $300000/$250000 = 1.20

Computerized System: $900000/$250000 = 3.60

Increase in sales = $150000/$1500000 = 0.1

Increase in Net income:

Manual System: $250000 x 0.1 x 1.20 = $30000

Computerized System: $250000 x 0.1 x 3.60 = $90000

Manual System:

Break-even sales = Fixed costs/Contribution margin ratio = $50000/20% = $250000

Contribution margin ratio = $300000/$1500000 = 20%

Margin of safety = Sales - Break-even sales = $1500000 - $250000 = $1250000

Margin of safety ratio = Margin of safety/Sales = $1250000/$1500000 = 0.83

Computerized System:

Break-even sales = Fixed costs/Contribution margin ratio = $650000/60% = $1083333.33

Contribution margin ratio = $900000/$1500000 = 60%

Margin of safety = Sales - Break-even sales = $1500000 - $1083333 = $416667

Margin of safety ratio = Margin of safety/Sales = $416667/$1500000 = 0.28

	Degree of Operating Leverage
Manual System	1.20
Computerized System	3.60