Problem: 2

Happy Feet hiking socks have variable cost of $6 per pair which are then sold for $10 per pair. Monthly fixed costs are $18,000; current sales are 12,000 pairs per month.

Required:

1. Compute the break-even sales in units.

2. Compute ABC's margin of safety in units and sales dollars.

3. Compute ABC's margin of safety as a percentage.

4. Compute ABC's operating leverage factor.

5. Compute ABC's % of operating income decline if sales fall by 20%.