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How does the replacement of manual labor with automated equipment affect a companys cost structure? What implications does this have for its operating leverage and break-even point?

This is one of my collegue's example but i need a new one....

The replacement of manual labor with automated machines only has a simple effect on the cost structure of the company regarding fixed costs and variable costs. The manual labor is considered as variable costs by most organizations. On the other hand, the automated machines will have fixed costs in nature. Therefore, the fixed expenses in the companies are likely to increase since the labor replacement will require the business to purchase the machines. This will also have two main impacts on the breakeven point. First, the breakeven point may increase ( dollar amount or per units) if the increase in fixed cost is very high compared to increase in contribution margin (per unit or ratio). Second breakeven point may decrease ( dollar amount or units) if the increase in contribution margin( per unit or ratio ) is very high compared to increase in fixed cost.There will also have an impact on operating leverage. The replacement to machines will increase the fixed cost and decrease variable cost and as result of that the companies will have higher operating leverage. Moreover the higher operating leverage will cause profit to increase very fast when sales are increasing and vise versa it will cause the profit to decrease very fast when sales are decreasing. Higher operating leverage is risky and companies have to make the right decision whether to replace manual labor with automated machines or not.

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