Reference no: EM132494797

Contribution Income Statement and Operating Leverage

Point 1: Florida Berry Basket harvests early-season strawberries for shipment throughout the eastern United States in March. The strawberry farm is maintained by a permanent staff of 10 employees and seasonal workers who pick and pack the strawberries. The strawberries are sold in crates containing 100 individually packaged one-quart containers. Affixed to each one-quart container is the distinctive Florida Berry Basket logo inviting buyers to "Enjoy the berry best strawberries in the world!" The selling price is $80 per crate, variable costs are $50 per crate, and fixed costs are $277,000 per year. In the year 2008, Florida Berry Basket sold 46,000 crates.

Question 1: Management is considering the purchase of several berry-picking machines. This will increase annual fixed costs to $377,000 and reduce variable costs to $47.50 per crate. Calculate the effect of this acquisition on operating leverage and explain any change. (Round your answer to two decimal places.)