Margin of Safety and Operating Leverage

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

Sales (64,000 units @ $25.00)	$1,600,000
Total variable cost	688,000
Contribution margin	$ 912,000
Total fixed cost	883,500
Operating income	$ 28,500

Required:

1. Compute the break-even sales dollars.

2. Compute the margin of safety in sales dollars.

3. Compute the degree of operating leverage.

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