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Determine the degree of operating leverage for each approach at current sales levels. (Round answers to 2 decimal places, e.g. 2.25.) Degree of operating leverage Current approach 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. 22.5%.) For a 10% drop in sales net income would For a 10% drop in sales net income would by Automated approach by % for Current approach % for Automated approach

Determine the degree of operating leverage for each approach at current sales levels. (Round answers to 2 decimal places, e.g. 2.25.) Degree of operating leverage Current approach 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. 22.5%.) For a 10% drop in sales net income would For a 10% drop in sales net income would by Automated approach by % for Current approach % for Automated approach

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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For nearly 20 years, Specialized Coatings has provided painting and galvanizing services for manufacturers in its region. Manufacturers of various metal products have relied 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 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 compiled 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. Sales Variable costs Contribution margin Fixed costs Net income Automated Current Approach Approach $1,870,000 $1,870,000 Degree of operating leverage 1,496,000 374,000 280,500 $93,500 Determine the degree of operating leverage for each approach at current sales levels. (Round answers to 2 decimal places, e.g. 2.25.) 1,028,500 841,500 664,785 $176,715 Current approach For a 10% drop in sales net income would For a 10% drop in sales net income would 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. 22.5%.) V by V Automated approach by % for Current approach % for Automated approach
Transcribed Image Text:For nearly 20 years, Specialized Coatings has provided painting and galvanizing services for manufacturers in its region. Manufacturers of various metal products have relied 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 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 compiled 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. Sales Variable costs Contribution margin Fixed costs Net income Automated Current Approach Approach $1,870,000 $1,870,000 Degree of operating leverage 1,496,000 374,000 280,500 $93,500 Determine the degree of operating leverage for each approach at current sales levels. (Round answers to 2 decimal places, e.g. 2.25.) 1,028,500 841,500 664,785 $176,715 Current approach For a 10% drop in sales net income would For a 10% drop in sales net income would 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. 22.5%.) V by V Automated approach by % for Current approach % for Automated approach
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