Question

Expand Your Critical Thinking 19-02 a1, b1, c1, d-e 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. Current Approach Automated Approach $2,110.00c Sales $2.110.00O 1,582,500 Variable costs 1,055,000 Contribution margin 527,500 1,055,000 Fixed costs 395,625 844,000 $131,875 $211,000 Net income

Answer 1

Current Approach Calculation Automated Approach Calculation Answer Answer Formula Contribution Margin X 100 Sales 527500/2110000 X 100 25.00% 1055000/2110000 X 100 50.00% Contribution Margin Ratio Break-even points in sales dollars Fixed Cost Contribution Margin Ratio 395625/25% $ 1,582,500 844000/50% $ 1,688,000 Margin of safety in dollars 2110000-1582500 527,500 2110000-1688000 422,000 Margin of safety ratio Actual sales - Break-even Sales Margin of safety in dollars X 100 Actual Sales Contribution Margin Operating Profit 527500/2110000 X 100 25.00% 422000/2110000 X 100 20.00% Degree of operating leverage 527500/131875 4.00 1055000/211000 5.00 As per policy, I can solve first four questions. Activate Windo