Answered step by step
Verified Expert Solution
Question
1 Approved Answer
For nearly 20 years, Sandhill Coatings has provided painting and galvanizing services for manufacturers in its region. Manufacturers of various metal products have relied
For nearly 20 years, Sandhill 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 Sandhill Coatings and its 20 skilled employees. During the past 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 Sandhill 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 labour. If Sandhill 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. As you can see, the company projects that during the past year it would have been far more profitable if it had used the automated approach. Current Approach Automated Approach Sales $2,400,000 $2,400,000 Variable costs 1,080,000 600,000 Contribution margin 1,320,000 1,800,000 Fixed costs 239,800 720,000 Operating income $1,080,200 $1,080,000 Calculate the contribution margin ratio under each approach. Current Approach Contribution margin ratio Calculate the break-even point in sales dollars under each approach. Current Approach Break-even point Automated Approach % Automated Approach
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