Lobster Trap Company is considering automating its manufacturing facility. Company information before and after the proposed automation follows: Before Automation AfterAutomation Sales revenue $ 196,000 $ 196,000 Less: Variable cost 107,000 41,000 Contribution margin $ 89,000 $ 155,000 Less: Fixed cost 11,000 60,000 Net operating income $ 78,000 $ 95,000 Required: 1. Calculate Lobster Trap’s break-even sales dollars before and after automation. 2. Compute Lobster Trap’s degree of operating leverage before and after automation.
Lobster Trap Company is considering automating its manufacturing facility. Company information before and after the proposed automation follows: Before Automation AfterAutomation Sales revenue $ 196,000 $ 196,000 Less: Variable cost 107,000 41,000 Contribution margin $ 89,000 $ 155,000 Less: Fixed cost 11,000 60,000 Net operating income $ 78,000 $ 95,000 Required: 1. Calculate Lobster Trap’s break-even sales dollars before and after automation. 2. Compute Lobster Trap’s degree of operating leverage before and after automation.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Lobster Trap Company is considering automating its manufacturing facility. Company information before and after the proposed automation follows:
| Before Automation | After Automation |
|||||
| Sales revenue | $ | 196,000 | $ | 196,000 | ||
| Less: Variable cost | 107,000 | 41,000 | ||||
| Contribution margin | $ | 89,000 | $ | 155,000 | ||
| Less: Fixed cost | 11,000 | 60,000 | ||||
| Net operating income | $ | 78,000 | $ | 95,000 | ||
Required:
1. Calculate Lobster Trap’s break-even sales dollars before and after automation.
2. Compute Lobster Trap’s degree of operating leverage before and after automation.
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