Summer Repair Shop has a monthly target operating income of $$50,000.$ Variable expenses are $60\%$ of sales and monthly fixed expenses are $$10,600.$

Requirements

Compute the monthly margin of safety in dollars if the shop achieves its income goal.

Express Summer Repair Shop's margin of safety as a percentage of target sales.

What is Summer Repair Shop's operating leverage factor at the target level of operating income?

Assume that the repair shop reaches its target. By what percentage will Summer Repair Shop's operating income fall if sales volume declines by $18\%?$

Requirement $1.$ Compute the monthly margin of safety in dollars if the shop achieves its income goal.

Begin by identifying the formula to compute the margin of safety.

A$.$ Target sales in dollars $-$ Break$-$even sales in dollars $=$ Margin of safety in dollars

B$.$ Target sales in dollars $-$ Contribution margin ratio $=$ Margin of safety in dollars

C$.$ Fixed expenses $-$ Variable expenses $=$ Margin of safety in dollars

D$.$ Target operating income $-$ Break$-$even sales in dollars $=$ Margin of safety in dollars

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