E-Z Seats manufactures swivel seats for customized vans. It currently manufactur
ID: 2534884 • Letter: E
Question
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)
(b)
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.
Explanation / Answer
Answers
Working
Current Situation
Proposed Automation
A
Sales price
$ 520.00
$ 520.00
B
Variable cost
$ 240.00
$ 140.00
C=A-B
Contribution margin
$ 280.00
$ 380.00
D
Units (seats)
8000
8000
E=CxD
Total contribution margin
$ 22,40,000.00
$ 30,40,000.00
F
Fixed costs
$ 16,00,000.00
$ 16,00,000.00
G=E-F
Net Income
$ 6,40,000.00
$ 14,40,000.00
H=C/A
Contribution margin ratio
53.85% [equals to your answer]
73.08%
I=F/H
Break Even point in Dollars
$ 29,71,216 [equals to your answer]
$ 21,89,381
J=(DxA) - I
Margin of safety ratio
$ 11,88,784
$ 19,70,619
K=E/G
Degree of Operating Leverage
3.5
2.11
Working
Current Situation
Proposed Automation
A
Sales price
$ 520.00
$ 520.00
B
Variable cost
$ 240.00
$ 140.00
C=A-B
Contribution margin
$ 280.00
$ 380.00
D
Units (seats)
8000
8000
E=CxD
Total contribution margin
$ 22,40,000.00
$ 30,40,000.00
F
Fixed costs
$ 16,00,000.00
$ 16,00,000.00
G=E-F
Net Income
$ 6,40,000.00
$ 14,40,000.00
H=C/A
Contribution margin ratio
53.85% [equals to your answer]
73.08%
I=F/H
Break Even point in Dollars
$ 29,71,216 [equals to your answer]
$ 21,89,381
J=(DxA) - I
Margin of safety ratio
$ 11,88,784
$ 19,70,619
K=E/G
Degree of Operating Leverage
3.5
2.11
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