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
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter6: Cost-volume-profit Analysis
Section: Chapter Questions
Problem 5E: Identify fixed and variable costs Intuit Inc. (INTU) develops and sells software products for the...
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