Flint Co. is contemplating a major change in its cost structure. Currently, all of its drafting work is performed by skilled drafters. Mike Flint the owner, is considering replacing the drafters with a computerized drafting system. However, before making the change, Mike 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 $1,770,000 $1,770,000 Variable costs 1,416,000 1,062,000 Contribution margin 354,000 708,000 Fixed costs 177,000 531,000 Net income $177,000 $177,000 (a) Determine the degree of operating leverage for each alternative. Degree of Operating Leverage Manual system Computerized system
Flint Co. is contemplating a major change in its cost structure. Currently, all of its drafting work is performed by skilled drafters. Mike Flint the owner, is considering replacing the drafters with a computerized drafting system. However, before making the change, Mike 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 $1,770,000 $1,770,000 Variable costs 1,416,000 1,062,000 Contribution margin 354,000 708,000 Fixed costs 177,000 531,000 Net income $177,000 $177,000 (a) Determine the degree of operating leverage for each alternative. Degree of Operating Leverage Manual system Computerized system
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
None
Transcribed Image Text:Flint Co. is contemplating a major change in its cost structure. Currently, all of its drafting work is performed by skilled drafters. Mike
Flint the owner, is considering replacing the drafters with a computerized drafting system.
However, before making the change, Mike 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
$1,770,000
$1,770,000
Variable costs
1,416,000
1,062,000
Contribution margin
354,000
708,000
Fixed costs
177,000
531,000
Net income
$177,000
$177,000
(a)
Determine the degree of operating leverage for each alternative.
Degree of
Operating Leverage
Manual system
Computerized system
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education