Managerial Analysis

 

BYP6-2

For nearly 20 years Custom Coatings has provided painting and galvanizing services for manufacturers in its region.  Manufacturers of various metal products have relied on the quality and quick turnaround time provided by Custom Coatings and its 20 skilled employees. During the last year, as a result of a sharp upturn in the economy, the companyís sales have increased by 30% relative to the previous year.  The company has not been able to increase its capacity fast enough, so Custom Coatings has had to turn work away because it cannot keep up with customer requests.

Top management is considering the purchase of a sophisticated robotic painting booth. The booth would represent a considerable move in the direction of automation versus manual labor.  If Custom Coatings purchases the booth, it would most likely lay off 15 of its skilled painters.  To analyze the decision, the company compiled production information from the most recent year and then prepared a parallel compilation assuming that the company would purchase the new equipment and lay off the workers. Those data are shown below. As you can see, the company projects that during the last year it would have been far more profitable if it had used the automated approach.

Current Approach

Automated Approach

Sales

$2,000,000

$2,000,000

Variable Costs

 1,200,000

    400,000

Contribution Margin

    800,000

  1,600,000

Fixed Costs

     200,000

     600,000

Net Income

$   600,000

$1,000,000

Compute the break-even point in sales dollars under each approach.  Discuss the implications of your findings.  

Please do in APA format

TAKE ADVANTAGE OF OUR PROMOTIONAL DISCOUNT DISPLAYED ON THE WEBSITE AND GET A DISCOUNT FOR YOUR PAPER NOW!