Victor’s Repair Shop has a monthly target operating income of $20,000. Variable expenses are 60% of sales, and monthly fixed expenses are $12,000.

Requirements

1. Compute the monthly margin of safety in dollars if the shop achieves its income goal.

2. Express Victor’s margin of safety as a percentage of target sales.

3. What is Victor’s operating leverage factor at the target level of operating income?

4. Assume that the company reaches its target. By what percentage will the company’s operating income fall if sales volume declines by 12%?