Case Study

ACC 349
TEAM
NAMES
DATE
INSTRUCTOR

Contribution Margin Ratio

Current Approach
800,000/2,000,000=40%

Automated Approach
1,600,000/2,000,000=80%

Break-Even Point
Current Approach:
$200,000 / 0.4= $500,000
Automated Approach:
$600,000 / 0.8 = $750,000

Margin of Safety
CURRENT

AUTOMATED

Contribution Margin Ratio

800,000/2,000,000 = .4 = 40%

Contribution Margin Ratio

1,600,000/2,000,000 = .8 = 80%

Break-Even Sales
200,000 x .4 = $500,000

Break-Even Sales
600,000 x .8 = $750,000

Margin of Safety
2,000,000-500,000 = $1,500,000

Margin of Safety
2,000,000 - 750,000 = $1,250,000

Margin of Safety Ratio

1,500,000/2,000,000 = .75 = 75%

Margin of Safety Ratio

1,250,000 / 2,000,000 = .63 = 63%

Operating Leverage
Contribution Margin/Profit

Current Approach
800,000/600,000= 1.33

Automated Approach
1,600,000/ 1,000,000 = 1.6

Operating Leverage
10% Decline in
Sales

Current Approach

1,800,000 (1,080,000 + 200,000)= $520,000

Automated Approach
1,800,000 (360,000 + 600,000)= $840,000

Matching Net Income

Between Approaches
If X were to represent variable
costs:
0.6/200,000 = 0.2x/600,000
0.8x = $1,000,000

Necessary Considerations Without

Change

Necessary Considerations With

Change

References
WEYGANDT, J. J., KIMMEL, P. D., & KIESO, D. E. (2010). MANAGERIAL
ACCOUNTING: TOOLS FOR BUSINESS DECISION MAKING (5TH ED.). HOBOKEN,
NJ: JOHN WILEY & SONS. RETRIEVED APRIL 27, 2015 FROM:
HTTPS://ECAMPUS.PHOENIX.EDU/CONTENT/EBOOKLIBRARY2/CONTENT/T
OC.ASPX?ASSETDATAID=FAA7743F-C783-4CA5-ADF5ECB3D60FC4E5&ASSETMETAID=1658626E-C722-4DD6-9BDC-26B3E30A685B