Blue Spruce Cafeteria operates cafeteria food services in public buildings in the Midwest. Blue Spruce 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, Blue Spruce'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 Automated Self-Service
Blue Spruce Cafeteria operates cafeteria food services in public buildings in the Midwest. Blue Spruce 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, Blue Spruce'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 Automated Self-Service
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Blue Spruce Cafeteria operates cafeteria food services in public buildings in the Midwest. Blue Spruce 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, Blue Spruce'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
(a)
Personal Service
System
$2,160,000
Operating leverage
1,728,000
$432,000
108,000
$324,000
Automated Self-Service
System
$2,160,000
1,188,000
$972,000
648,000
$324,000
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
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