Question

Lobster Trap Company is considering automating its manufacturing facility. Company information before and after the proposed automation follows: Sales revenue Less: Variable cost Contribution margin Less: Fixed cost Net operating income Before Automation $194,000 89, eee $105,eee 19, $ 86,888 After Automation $194,000 55,000 $139, eee 63,000 $ 76,000 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 Complete this question by entering your answers in the tabs below. Required 1 Required 2 Calculate Lobster Trap's break-even sales dollars decimal places and final answers to 2 after automation. (Round your contribution margin ratio to 4 NO Break-Even Sales Dollars Before Automation Break-Even Sales Dollars After Autome SE Required 2 >

Answer 1

1) Calculation of Break Even Sales Dollars (Amounts in $)

	Before Automation	After Automation
a) Contribution margin	105,000	139,000
b) Sales revenue	194,000	194,000
c) Contribution margin ratio (a/b*100)	54.1237%	71.6495%
d) Fixed cost	19,000	63,000
e) Break Even Sales Dollars (d/c)	35,104.77	87,928.04

Therefore, break even dollar sales before automation and after automation are $35,104.77 and $87,928.04 respectively.

2) Calculation of degree of operating leverage (Amounts in $)

	Before Automation	After Automation
a) Contribution margin	105,000	139,000
b) Net operating income	86,000	76,000
c) Degree of operating leverage (a/b)	1.2209	1.8289