ComfortCraft manufactures swivel seats for customized vans. It currently manufactures 10,000 seats per year, which it sells

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ComfortCraft manufactures swivel seats for customized vans. It currently manufactures 10,000 seats per year, which it sells for $480 per seat. It incurs variable costs of $180 per seat and fixed costs of $2,200,000. It is considering automating the upholstery process, which is now largely manual. It estimates that if it does so, its fixed costs will be $3,200,000, and its variable costs will decline to $80 per seat.

Instructions With the class divided into groups, answer the following questions.

(a) Prepare a CVP income statement based on current activity.

(b) Compute contribution margin ratio, break-even point in dollars, margin of safety ratio, and degree of operating leverage based on current activity.

(c) Prepare a CVP income statement assuming that the company invests in the automated upholstery system.

(d) Compute contribution margin ratio, break-even point in dollars, margin of safety ratio, and degree of operating leverage assuming the new upholstery system is implemented.

(e) Discuss the implications of adopting the new system.

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Related Book For  book-img-for-question

Accounting Tools For Business Decision Making

ISBN: 9780470534786

4th Edition

Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso

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