Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Splish Brothers Cafeteria operates cafeteria food services in public buildings in the Midwest. Splish Brothers is contemplating a major change in its cost structure.

    

Splish Brothers Cafeteria operates cafeteria food services in public buildings in the Midwest. Splish Brothers 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, Splish Brothers'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. Sales Variable costs Contribution margin Fixed costs Net Income Personal Service System $2,520,000 2,016,000 $504,000 126,000 $378,000 Automated Self-Service System $2,520,000 1,008,000 $1,512,000 1,134,000 $378,000 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, e.g. 0.25.) Margin of safety ratio Personal Service System Automated Self-Service System 1

Step by Step Solution

3.52 Rating (152 Votes )

There are 3 Steps involved in it

Step: 1

The margin of safety ratio is a financial metric used to determine how much sales can drop before a business reaches its breakeven point ie the point ... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting Tools for business decision making

Authors: kimmel, weygandt, kieso

4th Edition

978-0470117262, 9780470534786, 470117265, 470534788, 978-0470095461

More Books

Students also viewed these Accounting questions

Question

What is master production scheduling and how is it done?

Answered: 1 week ago