(Operating leverage; margin of safety) Tampa Packing makes a protein drink, Bottled Energy. The selling price per half-gallon is $3.60, and variable cost of production is $2.16. Total fixed costs per year are $316,600. The company is currently selling 250,000 half-gallons per year.

a. What is the margin of safety in half-gallons?

b. What is the degree of operating leverage?

c. If the company can increase sales in half-gallons by 30 percent, what percentage increase will it experience in income? Prove your answer us¬ ing the income statement approach.

d. If the company increases advertising by $41,200, sales in half-gallons will increase by 15 percent. What will be the new break-even point?

The new degree of operating leverage?

LO.1