Arquitectos Interiores of Juarez, Mexico, is contemplating a major change in its cost structure. Currently, all of its drafting work is performed by skilled draftsmen. Alfonso Jiminez, Arquitectos? owner, is considering replacing the draftsmen with a computerized drafting system. However, before making the change, Alfonso 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 |
| Computerized |
(a)?Determine the degree of operating leverage for each alternative.?(Round answers to 2 decimal place, e.g. 1.25.)
|Degree of Operating Leverage|
(b)?Calculate the increase in Net income for each alternative if sales increased by $112,000.
|Increase in Net Income|
Which alternative would produce the higher net income ???Computerized SystemManual System
(c)?Calculate the margin of safety ratio.?(Round ratios to 2 decimal place, e.g. 0.25.)
|Margin of Safety ratio|
Using the margin of safety ratio, determine which alternative could sustain the greater decline in sales before operating at a loss.??Computerized SystemManual System
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