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Sam’s Shingle Corporation is considering the purchase of a new automated shingle-cutting machine. The new machine...

Sam’s Shingle Corporation is considering the purchase of a new automated shingle-cutting machine. The new machine will reduce variable labor costs but will increase depreciation expense. Contribution margin is expected to increase from $303,660 to $342,220. Net income is expected to be the same at $48,200.

Compute the degree of operating leverage before and after the purchase of the new equipment. (Round answers to 1 decimal place, e.g. 1.5.)

Degree of operating leverage (old) =

Degree of operating leverage (new)=

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Expert Solution

Degree of Operating leverage = Contribution Margin / Net income

Degree of Operating leverage

OLD

= 303,660 /48,200 = 6.3 Times

New

= 342,220 /48,200 = 7.1 Times

ekkarill92 answered 2 years ago
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