(Operating leverage, margin ofsafety) One of the products produced by California Vineyards is the Arizona Cooler. The selling price per package is $4.50, and variable cost of production is $2.70. Total fixed costs per year are $316,600. The company is currently selling 200,000 packages per year.

a. What is the margin of safety in units?

b. What is the degree of operating leverage?

c. If the company can increase sales in units by 30 percent, what percentage increase will it experience in income? Prove your answer using the income statement approach.

d. If the company increases advertising by $41,200, sales in units will increase by 15 percent. What will be the new break-even point? The new degree of operating leverage?

LO1