Question
E-Z Seats manufactures swivel seats for customized vans. It currently manufactures 8,500 seats per year, which it sells for $400 per seat. It incurs variable
E-Z Seats manufactures swivel seats for customized vans. It currently manufactures 8,500 seats per year, which it sells for $400 per seat. It incurs variable costs of $144 per seat and fixed costs of $1,305,600. It is considering automating the upholstery process, which is now largely manual. It estimates that if it does so, its fixed costs will be $2,091,000, and its variable costs will decline to $72 per seat. Answer the following questions.
Prepare a CVP income statement based on current activity.
E-Z Seats CVP Income Statement | ||
Fixed CostsNet Income/(Loss)SalesGross ProfitVariable CostsContribution Margin | $ | |
Net Income/(Loss)SalesGross ProfitContribution MarginVariable CostsFixed Costs | ||
Gross ProfitVariable CostsContribution MarginSalesFixed CostsNet Income/(Loss) | ||
Fixed CostsSalesGross ProfitNet Income/(Loss)Variable CostsContribution Margin | ||
Gross ProfitVariable CostsNet Income/(Loss)Contribution MarginFixed CostsSales | $ |
Compute contribution margin ratio, break-even point in dollars, margin of safety ratio, and degree of operating leverage based on current activity. (Round margin of safety ratio and degree of operating leverage to 1 decimal place, e.g. 2.5% or 2.5 and break-even point in dollars to 0 decimal places, e.g. 2,520.)
Contribution margin ratio | % | ||
Break-even point in dollars | $ | ||
Margin of safety ratio | % | ||
Degree of operating leverage |
Prepare a CVP income statement assuming that the company invests in the automated upholstery system.
E-Z Seats CVP Income Statement | ||
Net Income/(Loss)Contribution MarginSalesVariable CostsGross ProfitFixed Costs | $ | |
Variable CostsGross ProfitSalesNet Income/(Loss)Contribution MarginFixed Costs | ||
Fixed CostsVariable CostsNet Income/(Loss)SalesGross ProfitContribution Margin | ||
Fixed CostsVariable CostsNet Income/(Loss)Contribution MarginGross ProfitSales | ||
Fixed CostsGross ProfitContribution MarginVariable CostsNet Income/(Loss)Sales | $ |
Compute contribution margin ratio, break-even point in dollars, margin of safety ratio, and degree of operating leverage assuming the new upholstery system is implemented. (Round degree of operating leverage to 1 decimal place, e.g. 2.5.)
Contribution margin ratio | % | ||
Break-even point in dollars | $ | ||
Margin of safety ratio | % | ||
Degree of operating leverage |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started