Current Attempt in Progress Blue Spruce Cafeteria operates cafeteria food services in public buildings in the Midwest Bl

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Current Attempt In Progress Blue Spruce Cafeteria Operates Cafeteria Food Services In Public Buildings In The Midwest Bl 1 (35.97 KiB) Viewed 66 times

Current Attempt In Progress Blue Spruce Cafeteria Operates Cafeteria Food Services In Public Buildings In The Midwest Bl 2 (24.62 KiB) Viewed 66 times

Current Attempt In Progress Blue Spruce Cafeteria Operates Cafeteria Food Services In Public Buildings In The Midwest Bl 3 (24.04 KiB) Viewed 66 times

Current Attempt in Progress Blue Spruce Cafeteria operates cafeteria food services in public buildings in the Midwest Blue Spruce is contemplating a major change in its cost structure. Currently, all of their cafeteria lines are staffed with hourly wage employees who hand serve the food to customers. Benson Riggs, Blue Spruce's owner, is considering replacing the employees with an automated self-service system However, before making the change, Benson would like to know the consequences of the change, since the volume of business varies significantly from location to location. Shown below are the CVP income statements for each alternative. Personal Service System $2,690,000 2.152,000 Automated Self- Service System $2,690,000 Sales Variable costs 1,076,000 Contribution margin $1,614,000 $538,000 134,500 Fixed costs 1,210,500 Net Income $403.500 $403,500
Blue Spruce's vice president of finance has offered another option. He suggests a different system that combines personal service at key points in the cafeteria line with a less expensive automated self-service system for the other items. The financial Information on this system is given below: Sales Variable costs Contribution margin Blended Service System $2,690,000 1,614.000 $1,076,000 672,500 $403,500 Fixed costs Net Income (1) Determine the degree of operating leverage for this option. (Round answer to 2 decimal places, e.g. 15.25.) Operating leverage
(2) How much would net income increase if sales increased by $269,000? (Round answer to 2 decimal places, e.g. 15.25%) Net income % (3) Using the margin of safety ratio, how large of a decline in sales could this option sustain before operating at a loss. (Round margin of safety ratio to 2 decimal places, e.g. 0.25 and decline in sales to 0 decimal places, e.g. 125.) Margin of safety ratio Decline in sales % (4) Which option do you recommend for Blue Spruce Cafeteria?