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 Computerized

Sales $1,670,000 $1,670,000

Variable costs 1,336,000 668,000

Contribution margin 334,000 1,002,000

Fixed costs 77,077 745,077

Net income $256,923 $256,923

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

Manual:

Computerized:

b. Calculate the margin of safety ratio.

Manual:

Computerized: