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.

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

Calculate the increase in Net income for each alternative if sales increased by $110,000.

Calculate the margin of safety ratio.

Manual System Computerized System Sales Variable costs Contribution margin $1,560,000 1,248,000 312,000 72,000 $240,000 $1,560,000 624,000 936,000 696,000 $240,000 Fixed costs Net income Degree of Operating Leverage Manual System Computerized System Increase in Net Income Manual System $ Computerized System $ Margin of Safety ratio Manual System Computerized System