Question - Algo Margin of Safety and Operating Leverage

Medina Company produces a single product. The projected income statement for the coming year is as follows:

Sales (60,000 units @ $23.00) $1,380,000

Total variable cost345,000

Contribution margin $ 1,035,000

Total fixed cost 1,000,500

Operating income $ 34,500

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.