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
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 | $3,153,000 | $3,153,000 | ||
Variable costs | 1,582,200 | 712,800 | ||
Contribution margin | 1,570,800 | 2,440,200 | ||
Fixed costs | 1,108,800 | 1,859,200 | ||
Net income | $462,000 | $581,000 |
(a) Compute the degree of operating leverage for the company under each scenario. (Round answers to 2 decimal places, e.g. 15.72.)
Degree of operating leverage | ||
Old | ||
New |
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