Bergen Hospital is contemplating an investment in an automated surgical system.

Question

Bergen Hospital is contemplating an investment in an automated surgical system. Its current process relies on the a number of skilled physicians. The new equipment would employ a computer robotic system operated by a technician. The company requested an analysis of the old technology versus the new technology. The accounting department has prepared the following CVP income statements for use in your analysis.

Do It! Review 20-4 Bergen Hospital is contemplating an investment in an automated surgical system. Its current process relies on the a number of skilled physicians. The new equipment would employ a computer robotic system operated by a technician. The company requested an analysis of the old technology versus the new technology. The accounting department has prepared the following CVP income statements for use in your analysis. old New Sales Variable costs Contribution margin Fixed costs Net income $3,231,000 $3,231,000 1,609,00069000 2,534,000 1,110,000 1,941,000 $512,000 $593,000 1,622,000 Compute the degree of operating leverage for the company under each scenario. (Round answers to 1 decimal place, e.g. 15.7.) Degree of operating leverage Old New LINK TO TEXT

Explanation / Answer

Degree of operating leverage = Contribution margin / operating income

Old = 1622000/512000 = 3.2

New = 2534000/593000 = 4.3

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