= Adam's Repair Shop has a monthly target operating income of $12,500. Variable expenses are 75% of sales, and monthly fixed expenses are $9,500. Hint: The contribution margin ratio = 100% - Variable expenses percentage of sales. 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. = Margin 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 Requirement 2. Express Adam's 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. (Round the percentage to the nearest whole percent.) The margin of safety percentage is % of target sales. Requirement 3. What is Adam's 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. Operating leverage factor = = Margin of safety percentage (Round your answer to two decimal places.) The operating leverage factor is 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, XX.XX%.) If volume decreases 8%, operating income will decrease %.
= Adam's Repair Shop has a monthly target operating income of $12,500. Variable expenses are 75% of sales, and monthly fixed expenses are $9,500. Hint: The contribution margin ratio = 100% - Variable expenses percentage of sales. 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. = Margin 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 Requirement 2. Express Adam's 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. (Round the percentage to the nearest whole percent.) The margin of safety percentage is % of target sales. Requirement 3. What is Adam's 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. Operating leverage factor = = Margin of safety percentage (Round your answer to two decimal places.) The operating leverage factor is 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, XX.XX%.) If volume decreases 8%, operating income will decrease %.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:=
Adam's Repair Shop has a monthly target operating income of $12,500. Variable expenses are 75% of sales, and
monthly fixed expenses are $9,500. Hint: The contribution margin ratio= 100% - Variable expenses percentage of
sales.
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.
= Margin 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
Requirement 2. Express Adam's 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.
(Round the percentage to the nearest whole percent.)
The margin of safety percentage is
% of target sales.
Requirement 3. What is Adam's 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.
Operating leverage factor
=
= Margin of safety percentage
(Round your answer to two decimal places.)
The operating leverage factor is
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, XX.XX%.)
If volume decreases 8%, operating income will decrease
%.
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