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iPad 10:14 PM 91%-. edugenwileyplus.com Place your order RuPaul's Drag R.. spotify student... cpb-us-west-2. WileyPLUS WileyPLUS WileyPLUS Kimmel, Accounting, 6e Home Read, Study & Practice Exercise 19-15 Casas Modernas of Juarez, Mexico, is contemplating a major change in its cost structure. Currently, all of its drafting work is performed by skilled draftsmen. Rafael Jiminez, Casas' owner, is considering replacing the draftsmen with 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 Chapter 19 Hemewerk Assignment Exeecise 19 Review score Review Results by Study Objective $1,780,000 1,424,000 356,000 82,154 $273,846 $1,780,000 12,000 1,068,000 794,154 $273.846 Sales Contriaution margin Determine the degree of operating leverage for each aternatihe (Round answers to 2 decimal places, e.g. 1.25-) Degree of Operating Leverage Manual System Computerized System Calculate the increase in Net income for each alternative sales increased by 110,000. Hanual System Computerized System Which aternative would produce the higher net income ? Calculate the margin of safety ratio. (Round ratios to 2 decimal places, e.g. 0.25.) Margin of Safety ratio Manual System Computerized System Using the margin of safety ratio, determine which alternative could sustain the greater decline in sales before operating at Question Attempts: 0 of 3 used SAVE FOR LATER

Explanation / Answer

Question - 1 ........ Degree of Operating leverage = C / EBIT

Mannual system = 356000 / 273846 = 1.30

Computerized system = 1068000 / 273846 = 3.9

Question - 2

Increase in Net Income = Increase in contribution = Increased sales * (Contribution/sales)

Manual system = 110,000 * 356/1780 = 22000

Computerized = 110,000 * 1068 / 1780 = 66000

Which alternative produce higher income = computerized system

Question - 3 Margin of safety ratio = Profit / Contribution

Manual system = 273846 / 356000 = 0.77

Computerized system = 273846 / 1068000 = 0.26

Sustain greater decline in sale before operating at a loss Mannual system

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