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

Question:

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 $2.2 million. It is considering automating the upholstery process, which is now largely manual. It estimates that if it does so, its fixed costs will be $3.2 million, and its variable costs will decline to $80 per seat.

Instructions
(a) Prepare a CVP income statement based on current activity.
(b) Calculate the 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 automatedupholstery system.
(d) Calculate the 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.

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Managerial Accounting Tools for Business Decision Making

ISBN: 978-1118856994

4th Canadian edition

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

Question Posted: