Splish Brothers Cafeteria operates cafeteria food services in public buildings in the Midwest. Splish Brothers is...

    

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Splish Brothers Cafeteria operates cafeteria food services in public buildings in the Midwest. Splish Brothers is contemplating a major change in its cost structure. Currently, all of their cafeteria lines are staffed with hourly wage employees who hand serve the food to customers. Benson Riggs, Splish Brothers's owner, is considering replacing the employees with an automated self-service system. However, before making the change, Benson would like to know the consequences of the change, since the volume of business varies significantly from location to location. Shown below are the CVP income statements for each alternative. Sales Variable costs Contribution margin Fixed costs Net Income Personal Service System $2,520,000 2,016,000 $504,000 126,000 $378,000 Automated Self-Service System $2,520,000 1,008,000 $1,512,000 1,134,000 $378,000 Using the margin of safety ratio, determine which alternative could sustain the greater decline in sales before operating at a loss. (Round answers to 2 decimal places, e.g. 0.25.) Margin of safety ratio Personal Service System Automated Self-Service System 1 Splish Brothers Cafeteria operates cafeteria food services in public buildings in the Midwest. Splish Brothers is contemplating a major change in its cost structure. Currently, all of their cafeteria lines are staffed with hourly wage employees who hand serve the food to customers. Benson Riggs, Splish Brothers's owner, is considering replacing the employees with an automated self-service system. However, before making the change, Benson would like to know the consequences of the change, since the volume of business varies significantly from location to location. Shown below are the CVP income statements for each alternative. Sales Variable costs Contribution margin Fixed costs Net Income Personal Service System $2,520,000 2,016,000 $504,000 126,000 $378,000 Automated Self-Service System $2,520,000 1,008,000 $1,512,000 1,134,000 $378,000 Using the margin of safety ratio, determine which alternative could sustain the greater decline in sales before operating at a loss. (Round answers to 2 decimal places, e.g. 0.25.) Margin of safety ratio Personal Service System Automated Self-Service System 1

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The margin of safety ratio is a financial metric used to determine how much sales can drop before a business reaches its breakeven point ie the point ... View the full answer