Answer: $1,376,000.
Explanation:
So, we are given the following data or parameters or information which is going to assist us in solving this question effectively;
(1). The current approach and automated approach for Contribution Margin Ratio is 25 % and 50 % respectively.
(2). The current approach and automated approach for Break-even point in Sales Dollar is $ 1,248,000 and $ 1,312,000 respectively.
(3). The current approach and automated approach for Degree of Operating Leverage is 4.18 and 5 respectively.
(4). The current and automated approach for Decline in net income for a 10 % decline in sales is 41.8 % and 50 %.
(5). The current and automated approach for level of Sales where net income will be same under both options is $ 1,376,000 and $ 1,376,000 Respectively.
(6). The current approach and automated approach for Margin of Safety Ratio is 24% and 20% respectively.
Note that;
(1). BP = TFC / CMR
Where BP= Break-even point in sales dollar, TFC = Total Fixed Cost and CMR= Contribution Margin Ratio.
(2). MSR = ( ASD - BSD) / ASD × 100.
Where MSR= Margin of Safety Ratio,ASD=Actual Sales dollars, BSD= Break-even Sales dollars , and ASD = Actual Sales dollars.
(3). CMR = CM ÷ Sales × 100.
CMR = Contribution margin ratio, CM =Contribution Margin.
(4). DOL = CM ÷ NI.
Where DOL = Degree of Operating Leverage, CM = Contribution Margin and NI = Net Income.
Decline in net income for a 10 % decline in sales = OL x 10.
Where OL => Operating Leverage.
We then say that V = level of sales.
=> V x 25 % - 312,000 = V x 50 % - 656,000.
=> 0.25 V = 344,000.
V = $ 1,376,000.
