Regina Repair Shop has a monthly target operating income of $32,000. Variable expenses are 75% of sales, and monthly fixed expenses are $8,000.
1. Compute the monthly margin of safety in dollars if the shop achieves its income goal.
2. Express Regina Repair Shop’s margin of safety as a percentage of target sales.
3. What is Regina 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 Regina Repair Shop’s operating income fall if sales volume declines by 10%?