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Compute lobster traps degree of operating leverage

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Reference no: EM132502450

Calculating Break-Even Point, Degree of Operating Leverage

Lobster Trap Company is considering automating its manufacturing facility. Company information before and after the proposed automation follows:

                                                        Before Automation                 After Automation
Sales revenue                                  $198,000                         $198,000
Less: Variable costs                                78,000                   38,000
Contribution margin                              $120,000                   $160,000
Less: Fixed costs                                     15,000                     58,000
Net operating income                              $105,000                     $102,000

Required:

Question 1. Calculate Lobster Trap's break-even sales dollars before and after automation.

Question 2. Compute Lobster Trap's degree of operating leverage before and after automation.

Question 3. Interpret the meaning of your calculations in requirement 2.

Reference no: EM132502450

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