*Broadening Your Perspective 20-1 (Part Level Submission)
E-Z Seats manufactures swivel seats for customized vans. It currently manufactures 8,000 seats per year, which it sells for $520 per seat. It incurs variable costs of $240 per seat and fixed costs of $1,600,000. It is considering
automating the upholstery process, which is now largely manual. It estimates that if it does so, its fixed costs will be $2,400,000, and its variable costs will decline to $100 per seat.
With the class divided into groups, answer the following questions.
*(a)
Your answer is correct.
Prepare a CVP income statement based on current activity.
E-Z Seats
CVP Income Statement
Sales
Variable Costs
Contribution Margin
Fixed Costs
Net Income/(Loss)
$1600000
$920000
$2240000
$1600000
$640000
Attempts: 1 of 2 used
*(b)
Compute contribution margin ratio, break-even point in dollars, margin of safety ratio, and degree of operating leverage based on current activity. (Round ratios and degree of operating leverage to 2 decimal places, e.g.
2.50 and break-even point in dollars to 0 decimal places, e.g. 2,520.)
Contribution margin ratio
Break-even point in dollars
Margin of safety ratio
Degree of operating leverage
%
