PRINTER VERSION 4 BACK NEXT Broadening Your Perspective 20-2 For nearly 20 years, Spec 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 ialized Coatings has provided painting and galvanizing services for manufacturers in its region. Manufacturers of various metal products have relied 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 labor. If Specialized Coatings purchases the booth, it would most likely lay off 15 of its skilled painters. To analyze the decision, the company compled 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. Current Automated Approach Approach $2,320,000 $2,320,000 Sales Variable costs 1,740,000 1,160,000 Contribution margin 80,001,160,000 Fixed costs 441,000 $139,000 928,000 $232,000 Net income Compute the contribution margin ratio under each approach. (Round ratios to 0 decimal places, e.g. 15%.) Automated approach Current approach Contribution margin ratio Compute the break-even point in sales dollars under each approach. Automated approach Current approach Compute the break-even point in sales dollars under each approach. Current approach Automated approach Break-even points in sales dollars using the current level of sales, compute the margin of safety ratio under each approach. (Round ratios to 0 decimal places, eg, 15%.) Current approach Automated approach Margin of safety ratio Determine the degree of operating leverage for each approach at current sales levels. (Round answers to 2 decmal places, e.g. 2.25.) Current approach Automated approach Degree of operating leverage How much would the company's net income decline under each approach with a 10% decline in sales? (Round answers to 1 decimal place, eg, 22.5%.) % for Current approach by For a 10% drop in sales net income would 90 for Automated approach For a 10% drop in sales net income would by At what level of sales would the company's net income be the same under either approach? BACK- PRINTER VERSION NEX Using the current level of sales, compute the margin of safety ratio under each approach. (Round ratios to o 15%.) decimal places, e.g Current approach Automated approach Margin of safety ratio ne the degree of operating leverage for each approach at current sales levels. (Round answers to 2 decimal places, e.g. 2.25.) Automated approach Current approach Degree of operating leverage How much would the company's net income decline under each approach with a 10% decline in sales? (Round answers to 1 decimal place, e.g. 22.590.) %for Current approach by For a 10% drop in sales net income would | % for Automated approach by For a 10% drop in sales net income would At what level of sales would the company's net income be the same under either approach? sales Net income would be equal to $ SURHTT ANSUED Question Attempts: 0 of 2 used SAVE FOR LATER