E$-$Z Seats manufactures swivel seats for customized vans. It currently manufactures $10,000$ seats per year, which it sells for $$500$ per

seat. It incurs unit variable costs of $$200$ per seat and fixed costs of $$2,000,000.$ It is considering automating the upholstery process,

which is now largely manual. It estimates that if it does so$,$ its fixed costs will be $$3,000,000,$ and its unit variable costs will decline to

$$100$ per seat.

The contribution margin ratio, break$-$even point in sales dollars, margin of safety ratio, and degree of operating leverage based on

current activity are as follows:

Contribution margin ratio

$60\mathrm{.}00\%$

Break$-$even point in dollars

$$3,333,333$

Margin of safety ratio

$33\mathrm{.}30\%$

Degree of operating leverage

$3\mathrm{.}00$

Assuming the new upholstery system is implemented the contribution margin ratio, break$-$even point in sales dollars, margin of safety

ratio, and degree of operating leverage are as follows:

Contribution margin ratio

Break$-$even point in dollars

Margin of safety ratio

Degree of operating leverage

$80\mathrm{.}00\%$

$$3,750,000$

$25\mathrm{.}00\%$

$4\mathrm{.}00$

Discuss the implications of adopting the new system.