Number 6 Tasty Time Cafeteria operates cafeteria food services in public buildings in the Midwest. Tasty Time is contemplating a major change in its cost structure. Currently, all of their cafeteria lines are staffed with hourly wage employees who hand serve the food to customers. Benson Riggs, Tasty Time's owner, is considering replacing the employees with an automated self-service system. However, before making the change, Benson would like to know the consequences of the change, since the volume of business varies significantly from location to location. Shown below are the CVP income statements for each alternative. Automated Self-Service Personal Service System $2,500,000 1.125,000 $1,375,000 875,000 S 500,000 System $2,500,000 1.875,000 625,000 125,000 S 500,000 Sales Variable costs Contribution margin Fixed costs Net Income Instructions Determine the degree of operating leverage for each alternative. Which alternative would produce the higher net income if sales increased by $250,000? ng the margin of safety ratio, determine which alternative could sustain the greater decline in sales before operating at a loss. Tasty Time's vice president of finance has offered another option. He suggests different system that combines personal service at key points in the cafeteria line with less expensive automated self -service system for the other items. The financial information on this system is given below: (a) (b) (c) (d) Blended Service System $2,500,000 1.500,000 $1,000,000 500,000 $ 500,000 Sales Variable costs Contribution margin Fixed costs Net Income Determine the degree of operating leverage for this option. How much would net income increase if sales increased by $250,000? Using the margin of safety ratio, how large of a decline in sales could this option sustain before operating at a loss. Which option do you recommend for Tasty Time Cafeteria? (1) (2) (3) (4)

Question
Number 6
Tasty Time Cafeteria operates cafeteria food services in public buildings in the Midwest. Tasty
Time is contemplating a major change in its cost structure. Currently, all of their cafeteria lines
are staffed with hourly wage employees who hand serve the food to customers. Benson Riggs,
Tasty Time's owner, is considering replacing the employees with an automated self-service
system. However, before making the change, Benson would like to know the consequences of
the change, since the volume of business varies significantly from location to location. Shown
below are the CVP income statements for each alternative.
Automated Self-Service
Personal Service
System
$2,500,000
1.125,000
$1,375,000
875,000
S 500,000
System
$2,500,000
1.875,000
625,000
125,000
S 500,000
Sales
Variable costs
Contribution margin
Fixed costs
Net Income
Instructions
Determine the degree of operating leverage for each alternative.
Which alternative would produce the higher net income if sales increased by $250,000?
ng the margin of safety ratio, determine which alternative could sustain the greater
decline in sales before operating at a loss.
Tasty Time's vice president of finance has offered another option. He suggests
different system that combines personal service at key points in the cafeteria line with
less expensive automated self -service system for the other items. The financial
information on this system is given below:
(a)
(b)
(c)
(d)
Blended Service
System
$2,500,000
1.500,000
$1,000,000
500,000
$ 500,000
Sales
Variable costs
Contribution margin
Fixed costs
Net Income
Determine the degree of operating leverage for this option.
How much would net income increase if sales increased by $250,000?
Using the margin of safety ratio, how large of a decline in sales could this option
sustain before operating at a loss.
Which option do you recommend for Tasty Time Cafeteria?
(1)
(2)
(3)
(4)
Expand
Transcribed Image Text

Number 6 Tasty Time Cafeteria operates cafeteria food services in public buildings in the Midwest. Tasty Time is contemplating a major change in its cost structure. Currently, all of their cafeteria lines are staffed with hourly wage employees who hand serve the food to customers. Benson Riggs, Tasty Time's owner, is considering replacing the employees with an automated self-service system. However, before making the change, Benson would like to know the consequences of the change, since the volume of business varies significantly from location to location. Shown below are the CVP income statements for each alternative. Automated Self-Service Personal Service System $2,500,000 1.125,000 $1,375,000 875,000 S 500,000 System $2,500,000 1.875,000 625,000 125,000 S 500,000 Sales Variable costs Contribution margin Fixed costs Net Income Instructions Determine the degree of operating leverage for each alternative. Which alternative would produce the higher net income if sales increased by $250,000? ng the margin of safety ratio, determine which alternative could sustain the greater decline in sales before operating at a loss. Tasty Time's vice president of finance has offered another option. He suggests different system that combines personal service at key points in the cafeteria line with less expensive automated self -service system for the other items. The financial information on this system is given below: (a) (b) (c) (d) Blended Service System $2,500,000 1.500,000 $1,000,000 500,000 $ 500,000 Sales Variable costs Contribution margin Fixed costs Net Income Determine the degree of operating leverage for this option. How much would net income increase if sales increased by $250,000? Using the margin of safety ratio, how large of a decline in sales could this option sustain before operating at a loss. Which option do you recommend for Tasty Time Cafeteria? (1) (2) (3) (4)

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