View the step-by-step solution to:

# Exercise 6-15 Arquitectos Interiores of Juarez, Mexico, is contemplating a major change in its cost structure. Currently, all of its drafting work is...

Exercise 6-15

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.

 ManualSystem ComputerizedSystem Sales \$1,712,000 \$1,712,000 Variable costs 1,369,600 684,800 Contribution margin 342,400 1,027,200 Fixed costs 97,829 782,629 Net income \$244,571 \$244,571

(a) Determine the degree of operating leverage for each alternative. (Round answers to 2 decimal place, e.g. 1.25.)

 Degree of Operating Leverage Manual System Computerized System

(b) Calculate the increase in Net income for each alternative if sales increased by \$112,000.

 Increase in Net Income Manual System Computerized System

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 Manual System Computerized System

Using the margin of safety ratio, determine which alternative could sustain the greater decline in sales before operating at a loss.

Computerized SystemManual System

Let me explain the... View the full answer

Exercise 6-15
Arquitectos Interiores of Juarez, Mexico, is contemplating a major change in its cost structure. Currently, all of its drafting work is performed by
Manual Computerized System System...

1 comment
• Hi, Margin of safety ratio for manual system-71.43% and Computerized System 23.81% for part C were incorrect
• bgons530
• Mar 14, 2016 at 1:43pm

### Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

### -

Educational Resources
• ### -

Study Documents

Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

Browse Documents