Expand Your Critical Thinking 19-02 a1, bi, ci, d-e For nearly 20 years, Specialized Coatings has provided painting and galvanizing services for manufacturers in its region. Manufacturers of various metal products have relied on the quality and quick turnaround time provided by Specialized Coatings and its 20 skilled employees. During the last year, as a result of a sharp upturn in the economy, the company's sales have increased by 30% relative to the previous year. The company has not been able to increase its capacity fast enough, so Specialized Coatings has had to turn work away because it cannot keep up with customer requests. Top management is considering the purchase of a sophisticated robotic painting booth. The booth would represent a considerable move in the direction of automation versus manual labor. If Specialized Coatings purchases the booth, it would most likely lay off 15 of its skilled painters. To analyze the decision, the company compiled production information from the most recent year and then prepared a parallel compilation assuming that the company would purchase the new equipment and lay off the workers. Those data are shown below. As you can see, the company projects that during the last year it would have been far more profitable if it had used the automated approach. Sales Variable costs Contribution margin Fixed costs Net income Current Approach $1,820,000 1,456,000 364,000 273,000 Automated Approach $1,820,000 1,001,000 819,000 647,010 $171,990 $91,000 Your answer is correct. Compute the contribution margin ratio under each approach. Current approach Automated approach Contribution margin ratio 20 45 LINK TO TEXT Your answer is correct. Compute the break-even point in sales dollars under each approach. Current approach Automated approach Break-even points in sales dollars 1,365,000 1,437,800 LINK TO TEXT Your answer is correct. Your answer is correct. Using the current level of sales, compute the margin of safety ratio under each approach. Current approach Automated approach Margin of safety ratio 21 J% LINK TO TEXT Your answer is partially correct. Try again. Determine the degree of operating leverage for each approach at current sales levels. (Round answers to 2 decimal places, e.g. 2.25.) Current approach Automated approach Degree of operating leverage 4.5 How much would the company's net income decline under each approach with a 10% decline in sales? (Round answers to 1 decimal place, e.g. 22.5%.) decrease 50 For a 10% drop in sales net income would by % for Current approach x decrease 45 For a 10% drop in sales net income would by % for Automated approach LINK TO TEXT x Your answer is incorrect. Try again. At what level of sales would the company's net income be the same under either approach? Net income would be equal to $ sales Click if you would like to Show Work for this question: Open Show Work LINK TO TEXT
