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Margin of Safety and Operating Leverage
Medina Company produces a single product. The projected income statement for the coming year is as follows:
| Sales (68,000 units @ $17.00) | $1,156,000 |
| Total variable cost | 323,680 |
| Contribution margin | $ 832,320 |
| Total fixed cost | 807,840 |
| Operating income | $ 24,480 |
Required:
1. Compute the break-even sales dollars. $
2. Compute the margin of safety in sales dollars. $
3. Compute the degree of operating leverage.
4. Compute the new operating income if sales are 20% higher than expected. $
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