Question

MESSAGE HY INSTRUCTOR | | RELSCRİEN | | PRİATERVERSON-MO Exercise 20-15 (Part Level Submission) Casas Modenas of Juarez, Mexico, is contemplating a major change in its cost structure. Currently, all of its drafting work is performed by skilled draftsmen, Rafael liminez, Casas' owner, is considering replacing the draftsmen with a computerized drafting system. However, before making the change, Rafael 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 Sales Variable costs Contribution margin Fixed costs Net income $1,400,000 1,120,000 280,000 64,615 $215,385 1,400,000 560,000 840,000 624,615 Y (a) Determine the degree of operating leverage for each alternative. (Round answers to 2 declmal places, e.g. 1.2s.) Manual System Computerized System LINK TO TEX By accessing this Question Assistance, you will learn while you earn points based on the Point Potential Policy set by your instructor Attempts: 0 of 3 used SAVE FOR LATER All Rights Reserved. A Division of Version 4.2 6:05)

Answer 1

	Degree of operating leverages = Contribution Margin / Operating income
		Manual System	Computerized System
	Contribution Margin =	$               2,80,000	$                 8,40,000
	Divide By	"/" By	"/" By
	Opearing income or Net income	$               2,15,385	$                 2,15,385
	Degree of operating leverages =	1.30	3.90
	Answer =	Manual System	Computerized System
	Degree of operating leverages =	1.30	3.90