Brief Exercise 130 Marina Manufacturing is considering buying new equipment for

Question

Brief Exercise 130

Marina Manufacturing is considering buying new equipment for its factory. The new equipment will reduce variable labor costs but increase depreciation expense. Contribution margin is expected to increase from $250,000 to $300,000. Net income is expected to remain the same at $100,000.

Compute the degree of operating leverage before and after the purchase of the new equipment and interpret your results. (Round answers to 2 decimal places, e.g. 15.25.)

Explanation / Answer

Particulars Before After Contribution Margin (A)    250,000.00    300,000.00 Net Income (B)    100,000.00    100,000.00 Degree of Operating Leverage (A/B)                 2.50                 3.00

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