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Tasty Time Cafeteria operates cafeteria food services in public buildings in the Midwest. Tasty Time is contemplating a major change in its cost structure. Currently, all of their cafeteria lines are staffed with hourly wage employees who hand serve the food to customers. Benson Riggs, Tasty Time's owner, is considering replacing the employees with an automated self-service system. However, before making the change, Benson would like to know the consequences of the change, since the volume of business varies significantly from location to location. Shown below are the CVP income statements for each alternative. Sales Variable costs Contribution margin Fixed costs Net Income Personal Service Automated Self-Service System System $1,990,000 $1,990,000 1,492,500 995,000 $497,500 $995,000 99,500 597,000 $398,000 $398,000 Your answer is correct. Determine the degree of operating leverage for each alternative. (Round answers to 2 decimal places, e.g. 15.25.) Personal Service System Automated Self-Service System 2.50 Operating leverage 1.25 Which alternative would produce the higher net income if sales increased by $199,000? The automated self-service system would produce the higher net income. eTextbook and Media Your answer is correct. Using the margin of safety ratio, determine which alternative could sustain the greater decline in sales before operating at a loss. (Round answers to 2 decimal places, e.g. 0.25.) Personal Service System Automated Self-Service System Margin of safety ratio .80 .40 Personal service system could sustain the greater decline in sales before operating at a loss. Tasty Time's vice president of finance has offered another option. He suggests a different system that combines personal service at key points in the cafeteria line with a less expensive automated self-service system for the other items. The financial information on this system is given below: Sales Variable costs Contribution margin Fixed costs Net Income Blended Service System $1,990,000 1,194,000 $796,000 398,000 $398,000 Determine the degree of operating leverage for this option. (Round answer to 2 decimal places, e.g. 15.25.) Operating leverage C2 e Textbook and Media X Your answer is incorrect. How much would net income increase if sales increased by $199,000? (Round answer to 2 decimal places, e.g. 15.25%.) Net income 79600 Your answer is partially correct. Using the margin of safety ratio, how large of a decline in sales could this option sustain before operating at a loss. (Round margin of safety ratio to 2 decimal places, e.g. 0.25.) Margin of safety ratio 995000 Decline in sales 50 eTextbook and Media Your answer is correct. Which option do you recommend for Tasty Time Cafeteria? Blended System Toutbool and Media

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