.1em; font-weight: normal;”>Arquitectos Interiores of Juarez Mexico is contemplating a major change in itscost structure. Currently all of its drafting work is performed by skilled draftsmen. AlfonsoJiminez Arquitectos’ owner is considering replacing the draftsmen with a computerizeddrafting system. However before making the change Alfonso would like to know the consequencesof the change since the volume of business varies signifi cantly from year toyear. Shown below are CVP income statements for each alternative.Manual ComputerizedSystem SystemSales $1 500 000 $1 500 000Variable costs 1 200 000 600 000Contribution margin 300 000 900 000Fixed costs 50 000 650 000Net income $ 250 000 $ 250 000Instructions(a) Determine the degree of operating leverage for each alternative.(b) Which alternative would produce the higher net income if sales increased by $150 000?(c) Using the margin of safety ratio determine which alternative could sustain the greaterdecline in sales before operating at a loss.
