Lobster Trap Company is considering automating its manufacturing facility. Company information before and after the proposed automation follows:     Before Automation   AfterAutomation   Sales revenue $ 206,000   $ 206,000   Less: Variable cost   99,000     42,000   Contribution margin $ 107,000   $ 164,000   Less: Fixed cost   19,000     57,000   Net operating income $ 88,000   $ 107,000       Required: 1. Calculate Lobster Trap’s break-even sales dollars before and after automation. 2. Compute Lobster Trap’s degree of operating leverage before and after automation.

Survey of Accounting (Accounting I)
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ISBN:9781305961883
Author:Carl Warren
Publisher:Carl Warren
Chapter12: Differential Analysis And Product Pricing
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Lobster Trap Company is considering automating its manufacturing facility. Company information before and after the proposed automation follows:

 

  Before Automation   After
Automation
 
Sales revenue $ 206,000   $ 206,000  
Less: Variable cost   99,000     42,000  
Contribution margin $ 107,000   $ 164,000  
Less: Fixed cost   19,000     57,000  
Net operating income $ 88,000   $ 107,000  
 

 

Required:

1. Calculate Lobster Trap’s break-even sales dollars before and after automation.

2. Compute Lobster Trap’s degree of operating leverage before and after automation.

 

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