Wildhorse 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 Jiminez, Wildhorse's owner, is considering replacing the draftsmen with a computerized
drafting system. However, before making the change, Rafael would like to know the consequences of the change, since the volume of
business varies significantly from year to year. Shown below are CVP income statements for each alternative.
Manual
System
Computerized
System
Sales
$1,860,000
$1,860,000
Variable costs
1,488,000
744,000
Contribution margin
372,000
1,116,000
Fixed costs
132,000
876.000
Net income
$240,000
$240,000
