Lobster Trap Company is considering automating its manufacturing facility. Compa

Question

Lobster Trap Company is considering automating its manufacturing facility. Company information before and after the proposed automation follows: After Before Automation Automation 196,000 $196,000 54,000 142,000 61,000 81,000 Sales revenue 89,000 107,000 1,000 96,000 Less: Variable cost Contribution margin Less: Fixed cost 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 and final answers to 2 decimal places.) 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

Explanation / Answer

1. Calculation of break even sales

Before automation

BES= Fixed Cost / Contribution Margin %

=11000/ (107000/196000)

=11000/54.60

=$20147

After Automation

BES=61000/ (142000/196000)

=61000/72.45%

=$84,196

2.Calculation of DOL

Before automation

DOL= Contribution margin / Net Operating income

=107000/96000

=1.11

After Automation

=142000/81000

=1.75

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