Not secure ezto.mheducation.com/hm.tpx 33 points obster Trap Company is consider

Question

Not secure ezto.mheducation.com/hm.tpx 33 points obster Trap Company is considering automating its manufacturing facility. Company information before and after the proposed automation follows Before Automation Automa After Sales revenue $190,000 $190,000 53,000 $ 99,000 $137.000 63,000 S 87,000 74,000 Less: Variable cost Contribution margin Less: Fixed cost 12,000 Net operating income Required 1. Calculate Lobster Trap's break-even sales dollars before and after automation. (Round your contribution margin ratio to 4 decimal places a Break-Even Sales Dollars Before Automation Break-Even Sales Dollars After Automation 2. Compute Lobster Trap's degree of operating leverage before and after automation. (Round your answers to 4 decimal places.) DOL Before Automation DOL After Automation References eBook & Resources Worksheet Learning Objective: 06-01 Use cost volume-profit analysis to find the break even boint

Explanation / Answer

SOLUTION

A. Breakeven sales dollar = Fixed costs / Contribution margin ratio

Before Automation

Contribution margin ratio = Contribution margin / Sales

= $99,000 / $190,000 = 52.1053%

Breakeven sales dollar = $12,000 / 52.1053% = $23,030.29

After Automation

Contribution margin ratio = $137,000 / $190,000 = 72.1053%

Breakeven sales dollar = $63,000 / 72.1053% = $87,372.22

B. Degree of Operating Leverage = Contribution margin / Net opearting income

Before Automation

Degree of Operating Leverage = $99,000 / $87,000 = 1.1379

After Automation

Degree of Operating Leverage = $137,000/ $74,000 = 1.8513

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