Flint Co. is contemplating a major change in its cost structure. Currently, all of its drafting work is performed by skilled drafters. Mike Flint the owner, is considering replacing the drafters 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. Manual System Computerized System Sales $1,770,000 $1,770,000 Variable costs 1,416,000 1,062,000 Contribution margin 354,000 708,000 Fixed costs 177,000 531,000 Net income $177,000 $177,000 (a) Determine the degree of operating leverage for each alternative. Degree of Operating Leverage Manual system Computerized system
Flint Co. is contemplating a major change in its cost structure. Currently, all of its drafting work is performed by skilled drafters. Mike Flint the owner, is considering replacing the drafters 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. Manual System Computerized System Sales $1,770,000 $1,770,000 Variable costs 1,416,000 1,062,000 Contribution margin 354,000 708,000 Fixed costs 177,000 531,000 Net income $177,000 $177,000 (a) Determine the degree of operating leverage for each alternative. Degree of Operating Leverage Manual system Computerized system
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Flint Co. is contemplating a major change in its cost structure. Currently, all of its drafting work is performed by skilled drafters. Mike
Flint the owner, is considering replacing the drafters 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.
Manual System
Computerized System
Sales
$1,770,000
$1,770,000
Variable costs
1,416,000
1,062,000
Contribution margin
354,000
708,000
Fixed costs
177,000
531,000
Net income
$177,000
$177,000
(a)
Determine the degree of operating leverage for each alternative.
Degree of
Operating Leverage
Manual system
Computerized system
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