Margin of Safety and Operating Leverage

Gonzales Company produces a single product. The projected income statement for the coming year is as follows:

Sales$(72,000$@$$15\mathrm{.}00)$

$$1,080,000$

Total variable cost

$486,000$

Contribution margin

$$594,000$

Total fixed cost

$577,500$

Operating income

$$16,500$

Required:

Compute the break$-$even sales dollars.

Compute the margin of safety in sales dollars.

Compute the degree of operating leverage.

Compute the new operating income if sales are $20\%$ higher than expected.