gth ratto, break-even point n dotta and degree of operating leverage assuming the new upholste (e) Discuss the implications of adopting the new system MANAGERIAL ANALYSIS 9-2 For nearly 20 years, Specialized Coatings has provided painting and galvaniains he economy relative to the previous year: The company has elied on the quality and quick turnaround time provided by Specialized Coa ces for manufacturers in its region. Manufacturers of various metal products ina Coatings and 20 skilled the company's sales have increased by 30% work away because it canno employees. During the last year, as a result of a sharp upturn in t not been able to increase its capacity fast enough, so Specialized Coatings has had to tu t keep up with customer requests. Top management is considering the purchase of a sophisticate booth. The boo th would represent a considerable move in the direction of au tomation versus manual labor: If Specialized Coatings purchases the boot off 15 of its skilled painters. To analyze the decision, the comp information from the most recent year and th h, it would most likely lay iled production en prepared a parallel compilation assuming company projects that during the last year it would any comp nat the company would purchase the new equipment and lay off the workers. T'hose data are shown below. As you can see, the have been far more profitable if it had used the automated approach. Sales Variable costs Contribution margin Current Approach $2,000,000 1,500,000 500,000 380,000 $ 120,000 Automated Approach $2,000,000 1,000,000 1,000,000 800,000 $ 200,000 Fixed costs Net income Instructions (a) Compute and interpret the contribution margin ratio under each approach. (b) Compute the break-even point in sales dollars under each approach. Discuss the impli- cations of your findings approach and interpret your findings How much (e) Using the current level of sales, compute the margin of safety ratio under each (d) Determ mine the degree of operating leverage for each approach at current sales levels. would the company's net income decline under each approach with a 10% decline in sales? (e) At what level of sales would the company's net income be the same under either approach? (B) Discuss the issues that the compary nssris making this decision