EZ Seats manufactures swivel seats for customized vans. It currently manufactures seats per year, which it sells for $ per
seat. It incurs unit variable costs of $ per seat and fixed costs of $ It is considering automating the upholstery process,
which is now largely manual. It estimates that if it does so its fixed costs will be $ and its unit variable costs will decline to
$ per seat.
The contribution margin ratio, breakeven point in sales dollars, margin of safety ratio, and degree of operating leverage based on
current activity are as follows:
Contribution margin ratio
Breakeven point in dollars
$
Margin of safety ratio
Degree of operating leverage
Assuming the new upholstery system is implemented the contribution margin ratio, breakeven point in sales dollars, margin of safety
ratio, and degree of operating leverage are as follows:
Contribution margin ratio
Breakeven point in dollars
Margin of safety ratio
Degree of operating leverage
$
Discuss the implications of adopting the new system.
