I need to answer question e, and I have seen it done many ways and I need to know the correct way to figure out the following <\/p>
At what level of sales would the company's net income be the same under either approach? <\/p>
<\/p>
BYP6-2 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.<\/p>
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.<\/p>
<\/p>
Current Approach Automated Approach Sales $2,000,000 $2,000,000 Variable costs 1,500,000 1,000,000 Contribution margin 500,000 1,000,000 Fixed costs 380,000 800,000 Net income $120,000 $200,000 Instructions<\/p>
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 implications of your findings. c. Using the current level of sales, compute the margin of safety ratio under each approach and interpret your findings. d. Determine the degree of operating leverage for each approach at current sales levels. How much 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? <\/p>
I need help with this question Please <\/p>
Our Math so far<\/p>
A. Compute and interpret the contribution margin ratio under each approach: <\/p>
<\/p>
contribution margin\/sales = CMR <\/p>
current approach: 500,000\/2,000,000 = .25 <\/p>
automated approach: 1,000,000\/2,000,000 = .50 <\/p>
<\/p>
B. compute break-even point in sales dollars under each approach: <\/p>
<\/p>
fixed costs\/CMR = break-even point <\/p>
current: 380,000\/.25 = 1,520,000 <\/p>
automated: 800,000\/.50 = 1,600,000 <\/p>
<\/p>
C. Using the current level of sales, compute the margin of safety ratio under each approach: <\/p>
<\/p>
actual sales - break-even sales\/ actual sales = MSR <\/p>
current: 2,000,000- 1,520,000 \/ 2,000,000 = .24 or 24% <\/p>
automated: 2,000,000- 1,600,000 \/ 2,000,000 = .20 or 20% <\/p>
<\/p>
D. Determine the degree of operating leverage for each approach at current sales levels: <\/p>
<\/p>
CM\/ Net income = Degree of OL <\/p>
current: 500,000 \/ 120,000= 4.16 (4.16 x 10%)= 41.6 % OP <\/p>
automated: 1,000,000 \/ 200,000 = 5 (5. x 10%) = 50 % OP <\/p>
<\/p>
<\/p>
<\/p>
<\/p>
<\/p>", "transcribed_text": "", "related_book": { "title": "Intermediate Accounting", "isbn": "470964731, 978-0470964736, 978-0470161012", "edition": "9th Canadian Edition, Volume 2", "authors": "Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield.", "cover_image": "https:\/\/dsd5zvtm8ll6.cloudfront.net\/si.question.images\/book_images\/516.jpg", "uri": "\/textbooks\/intermediate-accounting-9th-canadian-edition-volume-2-516", "see_more_uri": "" }, "free_related_book": { "isbn": "3631782799", "uri": "\/textbooks\/current-issues-in-turkish-economics-problems-and-policy-suggestions-1st-edition-9783631782798-9783631784389", "name": "Current Issues In Turkish Economics Problems And Policy Suggestions", "edition": "1st\u00a0Edition" }, "question_posted": "2024-06-29 01:22:28", "see_more_questions_link": "\/study-help\/questions\/business-finance-2024-September-13", "step_by_step_answer": "The Answer is in the image, click to view ...", "students_also_viewed": [ { "url": "\/for-most-gases-at-standard-or-near-standard-conditions", "description": "For most gases at standard or near standard conditions, the relationship among pressure, density, and temperature is given by the perfect gas equation of state: p = pRT, where R is the specific gas...", "stars": 3 }, { "url": "\/study-help\/psychology\/2-when-choosing-a-model-alternate-between-coping-models-who-1984625", "description": "2. 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