Question

In: Accounting

Sam's Shingle Corporation is considering the purchase of a new automated shingle-cutting 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. Contributian margin is expected to increase from $304,920 to $338.800. Net income is expected to be the same at $18,400. 


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) 

Solutions

Expert Solution

Degree of operating leverage = Contribution Margin / Net income

Old: Contibution Margin = 304,920

New: contibution MArgin = 338,800

Net income = 48,400

Answers

operating levergare (old) = 304,920/ 48,400 = 6.3 (Answer)

operating leverage (new) = 338 800/48,400 = 7.0 (Answer)


ekkarill92 answered 2 years ago
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