Question: Exercise 6-15 contemplating a major change in its cost structure. Currently, a of its drafting work is performed by Casas Moderna of Juarez, Mexico, is



Exercise 6-15 contemplating a major change in its cost structure. Currently, a of its drafting work is performed by Casas Moderna of Juarez, Mexico, is 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 Computerized System System $1,550,000 $1,550,000 Sales Variable costs 240,000 620,000 Contribution margin 310,000 930,000 691,538 Fixed costs 71,538 $238,462 $238,462 Net income 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
Step by Step Solution
There are 3 Steps involved in it
To solve the question we need to calculate the degree of operating leverage increase in net income with a sales increase and the margin of safety rati... View full answer
Get step-by-step solutions from verified subject matter experts
