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.

Manual System Computerized System

Sales $1,560,000 $1,560,000

Variable costs 1,248,000 624,000

Contribution margin 312,000 936,000

Fixed costs 72,000 696,000

Net income $240,000 $240,000

Determine the degree of operating leverage for each alternative. (Round answers to 2 decimal places, e.g. 1.25.)

Degree of Operating Leverage

Manual System

Computerized System

Calculate the increase in Net income for each alternative if sales increased by $121,000.

Increase in Net Income

Manual System $

Computerized System $

Calculate the margin of safety ratio. (Round ratios to 2 decimal places, e.g. 0.25.)

Margin of Safety ratio

Manual System

Computerized System