Casas Modernas of Juarez, Mexico, is contemplating a major change in its cost structure. Currently, all of its drafting work is performed by skilled draftsmen. Rafael Jiminez, Casas? owner, is considering replacing the draftsmen with a computerized drafting system. However, before making the change, Rafael would like to know the consequences of the change, since the volume of business varies significantly from year to year. Shown below are CVP income statements for each alternative.

Casas Modernas of Juarez, Mexico, is contemplating a major change in its cost stmcture. Currently, all of its drafting work is per-Formed by skilled drasmen. Rafael Jiminez, Casas' owner, is considering replacing the drasmen with a computerized drafting system. However, before making the change, Rafael would like to know the consequences of the change, sinoe the volume of business varies signlcantly from year to year. Shown below are CUP income statements for each alternative. Manual Computarlzed system System Sales $1,400,000 $1,400,000 Variable costs 1,120,000 560,000 Contribution margin 280,000 840,000 Fixed costs 99,355 659,355 Net income $180,545 $180,545 Deterrnine the degree of operating leverage for each alternative. (Round answers to 2 decimal places, ea. 1.25.} Degree of Operetlng Leverage Manual System | | Camp uterlzed System | I l Calculate the Increase In Net income for each alternative if sales Increased by $130,000. Man ual Syshe m E E Computerized System which alternative would produce the higher net income '1' I: V. |uNKmTErr| Calculate the margin of safety ratio. (Round ratios to 2 decimal places, e.g. 0.25.) Margin of safely I'I'o Man ual Syste m \\:| Computerized System C Using the margin of wfety ratio, determine which altemative could sustain the greater decline in sales before operating at a loss. |