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Tasty Time Cafeteria operates cafeteria food services in public buildings in the Midwest. Tasty Time is contemplating a major change in its cost structure. Currently, all of their cafeteria lines are staffed with hourly wage employees who hand serve the food to customers. Benson Riggs, Tasty Time's owner, is considering replacing the employees with an automated self-service system. However, before making the change, Benson would like to know the consequences of the change, since the volume of business varies significantly from location to location. Shown below are the CVP income statements for each alternative. Personal Service System Automated Self-Service System Sales $ 2,200,000 $ 2,200,000 Variable costs 1,650,000 1,100,000 Contribution margin $ 550,000 $ 1,100,000 Fixed costs 110,000 660,000 Net Income $ 440,000 $ 440,000 Your answer is correct. Determine the degree of operating leverage for each alternative. (Round answers to 2 decimal places, e.g. 15.25.) Personal Service System Automated Self-Service System Operating leverage 1.25 2.5 Your answer is correct. Which alternative would produce the higher net income if sales increased by $ 220,000? The automated self-service system would produce the higher net income. Your answer is partially correct. Using the margin of safety ratio, determine which alternative could sustain the greater decline in sales before operating at a loss. (Round answers to 2 decimal places, eg. 0.25.) Personal Service System Automated Self-Service System Margin of safety ratio 80.00 40.00 Personal service system could sustain the greater decline in sales before operating at a loss. Your answer is correct. Tasty Time's vice president of finance has offered another option. He suggests a different system that combines personal service at key points in the cafeteria line with a less expensive automated self-service system for the other items. The financial information on this system is given below: Blended Service System Sales $ 2,200,000 Variable costs 1,320,000 Contribution margin $ 880,000 Fixed costs 440,000 Net Income $ 440,000 Determine the degree of operating leverage for this option. (Round answer to 2 decimal places, e.g. 15.25.) Operating leverage * Your answer is incorrect. How much would net income increase if sales increased by $ 220,000? (Round answer to 2 decimal places, e.g. 15.25%.) Net income 1.40 % Your answer is partially correct. Using the margin of safety ratio, how large of a decline in sales could this option sustain before operating at a loss. (Round margin of safety ratio to 2 decimal places, e.g. 0.25.) Margin of safety ratio 1100000 Decline in sales 50 % x Your answer is incorrect. Which option do you recommend for Tasty Time Cafeteria? Automated Self-Service System
