For nearly 20 years, Cullumber 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 Cullumber Coatings and its 20 skilled employees. During the past 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 Cullumber 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 labour. If Cullumber 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. As you can see, the company projects that during the past year it would have been far more profitable if it had used the automated approach. Current Approach Automated Approach Sales $2,560,000 $2,560,000 Variable costs 1,536,000 512,000 Contribution margin 1,024,000 2,048,000 Fixed costs 256,000 768,000 Operating income $768,000 $1,280,000 Calculate the contribution margin ratio under each approach. Current Approach Automated Approach Contribution margin ratio enter percentages % enter percentages % Calculate the break-even point in sales dollars under each approach. Current Approach Automated Approach Break-even point $enter a dollar amount $enter a dollar amount Using the current level of sales, calculate the margin of safety ratio under each approach and interpret your findings. (Round answers to 2 decimal places, e.g. 2.75%.) Current Approach Automated Approach Margin of safety ratio enter percentages rounded to 2 decimal places % enter percentages rounded to 2 decimal places % The current approach is select an option risky. Determine the degree of operating leverage for each approach at current sales levels. (Round answers to 2 decimal places, e.g. 2.75.) Current Approach Automated Approach Degree of operating leverage enter an appropriate value rounded to 2 decimal places enter an appropriate value rounded to 2 decimal places Calculate how much the company’s operating income would decline under either approach with a 10% decline in sales. (Round answers to 2 decimal place, e.g. 27.50%.) In times of falling sales, the select a type of approach approach would be preferred. If there was a 10% decrease in sales, operating income under the current approach would select an effect by enter percentages rounded to 2 decimal places % compared to enter percentages rounded to 2 decimal places % under the automated approach. Determine at what level of sales the company’s operating income would be the same under either approach. Level of sales $enter the level of sales in dollars

For nearly 20 years, Cullumber 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 Cullumber Coatings and its 20 skilled employees. During the past 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 Cullumber 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 labour. If Cullumber 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. As you can see, the company projects that during the past year it would have been far more profitable if it had used the automated approach. Current Approach Automated Approach Sales $2,560,000 $2,560,000 Variable costs 1,536,000 512,000 Contribution margin 1,024,000 2,048,000 Fixed costs 256,000 768,000 Operating income $768,000 $1,280,000 Calculate the contribution margin ratio under each approach. Current Approach Automated Approach Contribution margin ratio enter percentages % enter percentages % Calculate the break-even point in sales dollars under each approach. Current Approach Automated Approach Break-even point $enter a dollar amount $enter a dollar amount Using the current level of sales, calculate the margin of safety ratio under each approach and interpret your findings. (Round answers to 2 decimal places, e.g. 2.75%.) Current Approach Automated Approach Margin of safety ratio enter percentages rounded to 2 decimal places % enter percentages rounded to 2 decimal places % The current approach is select an option risky. Determine the degree of operating leverage for each approach at current sales levels. (Round answers to 2 decimal places, e.g. 2.75.) Current Approach Automated Approach Degree of operating leverage enter an appropriate value rounded to 2 decimal places enter an appropriate value rounded to 2 decimal places Calculate how much the company’s operating income would decline under either approach with a 10% decline in sales. (Round answers to 2 decimal place, e.g. 27.50%.) In times of falling sales, the select a type of approach approach would be preferred. If there was a 10% decrease in sales, operating income under the current approach would select an effect by enter percentages rounded to 2 decimal places % compared to enter percentages rounded to 2 decimal places % under the automated approach. Determine at what level of sales the company’s operating income would be the same under either approach. Level of sales $enter the level of sales in dollars

Purchasing and Supply Chain Management

6th Edition

ISBN:9781285869681

Author:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson

Publisher:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson

ChapterC: Cases

Section: Chapter Questions

Problem 5.1SC: Scenario 3 Ben Gibson, the purchasing manager at Coastal Products, was reviewing purchasing...

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Question

	Current Approach	Automated Approach
Sales	$2,560,000		$2,560,000
Variable costs	1,536,000		512,000
Contribution margin	1,024,000		2,048,000
Fixed costs	256,000		768,000
Operating income	$768,000		$1,280,000

Calculate the contribution margin ratio under each approach.

		Current Approach		Automated Approach
Contribution margin ratio		enter percentages %		enter percentages %

Calculate the break-even point in sales dollars under each approach.

		Current Approach		Automated Approach
Break-even point		$enter a dollar amount		$enter a dollar amount

Using the current level of sales, calculate the margin of safety ratio under each approach and interpret your findings. (Round answers to 2 decimal places, e.g. 2.75%.)

		Current Approach		Automated Approach
Margin of safety ratio		enter percentages rounded to 2 decimal places %		enter percentages rounded to 2 decimal places %

The current approach is select an option risky.

Determine the degree of operating leverage for each approach at current sales levels. (Round answers to 2 decimal places, e.g. 2.75.)

		Current Approach		Automated Approach
Degree of operating leverage		enter an appropriate value rounded to 2 decimal places		enter an appropriate value rounded to 2 decimal places

Calculate how much the company’s operating income would decline under either approach with a 10% decline in sales. (Round answers to 2 decimal place, e.g. 27.50%.)

In times of falling sales, the select a type of approach approach would be preferred.

If there was a 10% decrease in sales, operating income under the current approach would select an effect by enter percentages rounded to 2 decimal places % compared to enter percentages rounded to 2 decimal places % under the automated approach.

Determine at what level of sales the company’s operating income would be the same under either approach.

Level of sales

$enter the level of sales in dollars

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