Summer Repair Shop has a monthly target operating income of $40,000. Variable expenses are 85% of sales and monthly fixed expenses are $9,500. Requirements 1. Compute the monthly margin of safety in dollars if the shop achieves its income goal. 2. Express Summer Repair Shop's margin of safety as a percentage of target sales 3. What is Summer Repair Shop's operating leverage factor at the target level of operating income? 4. Assume that the repair shop reaches its target. By what percentage will Summer Repair Shop's operating income fall if sales volume declines by 14%?
Summer Repair Shop has a monthly target operating income of $40,000. Variable expenses are 85% of sales and monthly fixed expenses are $9,500. Requirements 1. Compute the monthly margin of safety in dollars if the shop achieves its income goal. 2. Express Summer Repair Shop's margin of safety as a percentage of target sales 3. What is Summer Repair Shop's operating leverage factor at the target level of operating income? 4. Assume that the repair shop reaches its target. By what percentage will Summer Repair Shop's operating income fall if sales volume declines by 14%?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Summer Repair Shop has a monthly target operating income of $40,000. Variable expenses are 85% of sales and monthly fixed expenses are $9,500
Requirements
1. Compute the monthly margin of safety in dollars if the shop achieves its income goal.
2. Express Summer Repair Shop's margin of safety as a percentage of target sales.
3. What is Summer Repair Shop's operating leverage factor at the target level of operating income?
4. Assume that the repair shop reaches its target. By what percentage will Summer Repair Shop's operating income fall if sales volume declines by 14%?
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