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Casas Modernas of Juarez, Mexico, is contemplating a major change in its cost structure. Currently, all...

Casas Modernas of Juarez, Mexico, is contemplating a major change in its cost structure. Currently, all of its drafting work is performed by skilled draftsmen.

Rafael Jimmnez, Casas owner, is considering replacing the draftsmen with a computerized draftsmen system. However, before making the change, Rafsel

would like to know the consequences of the change,

Manuel system Computerized system

Sales 1,800,000 1,800,000

Variable Costs 1,440,000 720,000

Contribution Margin 360,000 1,080, 000

'Fixed Costs 120,000 840,000

Net Income $ 24,000 $ 24,000

Calculate the Margin of safety ratio:

Manual System ____________________

Computerized System ________________________

Solutions

Expert Solution

Calculation of Margin of safety in dollars of Manuel System:
Contribution margin ratio= Contribution/sales*100
                                                   = 360000/1800000*100= 20%
Break even point in dollars= Fixed cost/ contribution margin ratio
                                                     =120000/0.20= 600000
margin of safety in dollars= Total sales- break even sales
                                                    =1800000-600000=1200000
Margin of safety in dollar= $12,00,000
Calculation of Margin of safety in dollars of computerized System:
Contribution margin ratio= Contribution/sales*100
                                                   = 1080000/1800000*100= 60%
Break even point in dollars= Fixed cost/ contribution margin ratio
                                                     =840000/0.60= 1400000
margin of safety in dollars= Total sales- break even sales
                                                    =1800000-1400000=400000
Margin of safety in dollar= $400000

ekkarill92 answered 2 years ago
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