Foster\'s Repair Shop has a monthly target operating income of S o anable expens
ID: 2558990 • Letter: F
Question
Foster's Repair Shop has a monthly target operating income of S o anable expenses are 40% of sales, and monthly fixed expenses are s, soo. Read the requirements Requirement 1. Compute the monthly margin of safety in dollars if the shop achieves its income goal Begin by identifying the formula to compute the margin of safety. Target sales in dollars Breakeven sales in dollarsMargin of safety in dollars Round intermediate calculations up to the nearest whole dollar and your final answer to the nearest whole dollar.) The margin of safety is $50,000 Requirement 2. Express Fosters margin of safety as a percentage of target sales. Begin by identifying the formula to compute the margin of safety as a percentage of target sales. Margin of safety in dollarsTarget sales in dollarsMargin of safety percentage Round the percentage to the nearest whole percent.) The margin of safety percentage is 80%Of target sales. Requirement 3. What is Fosters operating leverage factor at the target level of operating income? Begin by identifying the formula to compute the operating leverage factor at the target level of operating income. Contibution margin Operating income - Operating leverage factor Round your answer to two decimal places.) The operating leverage factor is 1.25 Requirement 4. Assume that the company reaches its target. By what percentage will the company's operating income fall if sales volume declines by 8%? (Round your answer to two decimal places, Xxxx%) If volume decreases 8%, operating income will decreaseExplanation / Answer
Requirement 1) contribution = fixed expense +target operating income 7,500+30,000 37500 variable expense is 40% of sales so contribution is 60% of sales total actual sales = 37500/60% 62500 Break even sales = 7500/60% 12500 target sales in dollars -Break even sales in dollars=Margin of safety in dollars 62,500 - 12500 =50,000 margin of safety =$50,000 Requirement 2) Margin of safety In dollars/target sales in dollars 50,000/62500 80.00% Requirement 3) contribution margin/operating income = operating leverage factor 37,500/30000 1.25 Requirement 4) if volume decreases 8%,operating income will decrease by 10 % (8*1.25)