Case StudyACC 349TEAMNAMESDATEINSTRUCTOR

Contribution Margin RatioCurrent Approach800,000/2,000,000=40%

Automated Approach1,600,000/2,000,000=80%

Break-Even PointCurrent Approach: $200,000 / 0.4= $500,000

Automated Approach: $600,000 / 0.8 = $750,000

Margin of SafetyCURRENTContribution Margin Ratio 800,000/2,000,000 = .4 = 40%

Break-Even Sales200,000 x .4 = $500,000

Margin of Safety2,000,000-500,000 = $1,500,000

Margin of Safety Ratio1,500,000/2,000,000 = .75 = 75%

AUTOMATEDContribution Margin Ratio1,600,000/2,000,000 = .8 = 80%

Break-Even Sales600,000 x .8 = $750,000

Margin of Safety2,000,000 - 750,000 = $1,250,000

Margin of Safety Ratio1,250,000 / 2,000,000 = .63 = 63%

Operating LeverageCurrent Approach800,000/600,000= 1.33

Automated Approach1,600,000/ 1,000,000 = 1.6Contribution Margin/Profit

Operating LeverageCurrent Approach1,800,000 (1,080,000 + 200,000)= $520,000

Automated Approach1,800,000 (360,000 + 600,000)= $840,00010% Decline in Sales

Matching Net Income Between ApproachesIf X were to represent variable costs:0.6/200,000 = 0.2x/600,0000.8x = $1,000,000

Necessary Considerations Without Change

Necessary Considerations With Change

References WEYGANDT, J. J., KIMMEL, P. D., & KIESO, D. E. (2010). MANAGERIAL ACCOUNTING: TOOLS FOR BUSINESS DECISION MAKING (5TH ED.). HOBOKEN, NJ: JOHN WILEY & SONS. RETRIEVED APRIL 27, 2015 FROM: HTTPS://ECAMPUS.PHOENIX.EDU/CONTENT/EBOOKLIBRARY2/CONTENT/TOC.ASPX?ASSETDATAID=FAA7743F-C783-4CA5-ADF5-ECB3D60FC4E5&ASSETMETAID=1658626E-C722-4DD6-9BDC-26B3E30A685B

There are two things to take away from these results. The Automated approach will have double the amount to contribute towards to apply towards fixed costs and contribute towards net income that the Current approach has. If sales increase for example by $100,000, net income will increase by 40% under the current and 80% under the automated.

*This is a calculation of both approaches that gives the company lowest number to be at to ensure the company does not lose money. Anything below this value is a loss and anything above is a gain. Using the automated approach the break even point is 750,000 dollars and with current approach the break even point would be 500,000 dollars. The current approach has a much lower break even point.

* This calculation shows how much lead-way the company has between the break-even point and the actual sales. With this calculation a company can determine the lowest amount they can sell an item without losing revenue on a product. The higher the ratio a business has the more room they have before the break-even point of the product. According to these calculations current approach is the better option as it has a 12% higher ratio.

*This ratio illustrates how the organization is utilizing fixed assets to generate profits. This ratio also shows that the automated approach will greatly increase leverage; it also indicates an increase in fixed assets is required to generate an equal profit, and even with a 10% reduction in sales the automated approach would still provide sizable increased profits.

*We already have the sales information. Both the automated approach and current approach show $2,000,000 in sales. You deduct 10 percent from $2,000,000 and you are left with $1,800,000.If a business were to experience a 10% decrease in sales of $200,000, the net income would have a decrease of the same amount.Thought the rest were pretty good. which slide was the one you need help with? Other then these.

*In order for net income to be equal under both the current and automated approaches, both approaches would have to reach sales of $1,000,000. This would result in a net income of $200,000 for both approaches. *Custom Coating has to weigh the pros and cons of this decision in order to come up with the best choice for the company. Their workers are skilled at the job and have been with the company for some time now. They only have about 20 of them and with the new work load they have to turn away some business. If they did use the booth they could lower variable cost by 800,000 but fix cost would go up by 400,000.

*It is essential for the profitability of the organization, as well as the life of the organization, to take many things into consideration when making a decision of this magnitude. One of the main considerations should be the reliability and strength of their revenue as well as their confidence in their ability to maintain current sales levels. If sales were to decrease, drop, or plummet what would the organizations safest approach be? If current sales levels were maintained, what would the organizations profit maximizing approach be? The current approach, while not as profitable, is the safest approach in event of an unexpected decrease in sales. The automated approach would be the organizations worst approach in the event sales were to drop unexpectedly and their best approach to maximize profits. However, it is a high risk project, offering only a minimal level of safety for any issues that might occur with sales, but one must keep in mind that the higher the profits the higher the risk.

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