Managerial Analysis

Anonymous
timer Asked: Apr 23rd, 2016

Question description

BYP6-2 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 ApproachAutomated Approach
Sales$2,000,000$2,000,000
Variable costs 1,500,000 1,000,000
Contribution margin   500,000 1,000,000
Fixed costs   380,000   800,000
Net income$  120,000$  200,000
                 

Instructions

  • Compute and interpret the contribution margin ratio under each approach.
  • Compute the break-even point in sales dollars under each approach. Discuss the implications of your findings.
  • Using the current level of sales, compute the margin of safety ratio under each approach and interpret your findings. Michaela 
  • Determine the degree of operating leverage for each approach at current sales levels. How much would the company's net income decline under each approach with a 10% decline in sales?
  • At what level of sales would the company's net income be the same under either approach?
  • Discuss the issues that the company must consider in making this decision.

The only one that I have to do:  Is the third one, Question is :  Using the current level of sales, compute the margin of safety ratio under each approach and interpret your findings. 


If you have any questions please let me know.


Tutor Answer

(Top Tutor) Studypool Tutor
School: Carnegie Mellon University
Studypool has helped 1,244,100 students
flag Report DMCA
Similar Questions
Hot Questions
Related Tags

Brown University





1271 Tutors

California Institute of Technology




2131 Tutors

Carnegie Mellon University




982 Tutors

Columbia University





1256 Tutors

Dartmouth University





2113 Tutors

Emory University





2279 Tutors

Harvard University





599 Tutors

Massachusetts Institute of Technology



2319 Tutors

New York University





1645 Tutors

Notre Dam University





1911 Tutors

Oklahoma University





2122 Tutors

Pennsylvania State University





932 Tutors

Princeton University





1211 Tutors

Stanford University





983 Tutors

University of California





1282 Tutors

Oxford University





123 Tutors

Yale University





2325 Tutors