Shanahan Co. of Dublin, Ireland is contemplating a major change in its cost structure. Currently, all of its drafting work is performed by skilled draftsmen. Mike Shanahan the owner, is considering replacing the draftsmen with a computerized drafting system. However, before making the change, Mike would like to know the consequences of the change, since the volume of business varies significantly from year to year. Shown below are CVP income statements for each alternative.

c. Calculate the break-even sales and margin of safety ratio at the sales level of $1,500,000 under each alternative.

d. Which system has higher operating risk and why?

Sales Variable costs Contribution margin Fixed costs Manual System $1,500,000 1,200,000 300,000 150,000 $150,000 Computerized System $1,500,000 900,000 600,000 450,000 $150,000 Net income