Exercise 6-15 Casas Modernas of Juarez, Mexico, is contemplating a major change in its cost struc… 1 answer below »

 
   

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Exercise 6-15 Casas Modernas of Juarez, Mexico, is contemplating a major change in its cost structure. Currently, all of its drafting work is performed by skilled draftsmen. Rafael Jiminez, Casas’ owner, is considering replacing the draftsmen with a computerized drafting system. However, before making the change, Rafael would like to know the consequences of the change, since the volume of business varies significantly from year to year. Shown below are CVP income statements for each alternative.

Manual
System

Computerized
System Sales $1,690,000 $1,690,000 Variable costs 1,352,000 676,000 Contribution margin 338,000 1,014,000 Fixed costs 96,571 772,571 Net income $241,429 $241,429 Determine the degree of operating leverage for each alternative. (Round answers to 2 decimal places, e.g. 1.25.)

Degree of Operating Leverage Manual System

? Computerized System

?

LINK TO TEXT Calculate the increase in Net income for each alternative if sales increased by $142,000.

Increase in Net Income Manual System

? Computerized System

?

Which alternative would produce the higher net income ?

Computerized System or Manual System

LINK TO TEXT Calculate the margin of safety ratio. (Round ratios to 2 decimal places, e.g. 0.25.)

Margin of Safety ratio Manual System ?

Computerized System

?

Using the margin of safety ratio, determine which alternative could sustain the greater decline in sales before operating at a loss.

Computerized System OR Manual System