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 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 variable costs will decline to $100 per seat. The contribution margin ratio, break-even point in dollars, margin of safety ratio, and degree of operating leverage based on current activity is as follows:

Contribution margin ratio		60.00	%
Break-even point in dollars		$3333333
Margin of safety ratio		33.30	%
Degree of operating leverage		3.00

Assuming the new upholstery system is implemented the contribution margin ratio, break-even point in dollars, margin of safety ratio, and degree of operating leverage is as follows:

Contribution margin ratio		80.00	%
Break-even point in dollars		$3750000
Margin of safety ratio		25.00	%
Degree of operating leverage		4.00

(e) Discuss the implications of adopting the new system.