Using the contribution income statement, the operating leverage ratio and margin of safety in dollars and as a percentage of sales have been computed. Explain what each of those figures shows. What do these figures disclose about the projected profitability of Water Play and how do they relate to break-even analysis and risk? What comments do you have about the projected financial performance of the company that you feel management should be aware of?

Water Play, Inc. Contribution Income Statement For Year Ended December 31, 20XX Total Per Unit Percentage S 2,160,000,000 S 30,000 $ 540,000,000 208,008,000 345,000,000 172,800,000 7,500 2,889 4.792 100.0% 0.0% 25.0% 9.6% 16.0% 8.0% 2,400 Sales revenue Variable costs: Direct materials Direct labor Variable overhead Variable selling expenses Variable administrative expenses Total variable costs Contribution margin Fixed costs: Fixed overhead Fixed selling expenses Fixed administrative expenses Total fixed costs Net operating income 1,265,808,000 894,192,000 17,581 12,419 0.0% 58.6% 41.4% 221,400,000 215,987,500 147,762,500 585,150,000 309,042,000 S Break-even point in units 47,116 Total fixed costs CM per unit 585,150,000 12,419 Break-even point in dollars 1,413,481,668 Total fixed costs CM percentage 585,150,000 41.4% Margin of safety in dollars Budgeted sales revenue -Break-even sales Margin of safety 2,160,000,000 1,413,481,668 746,518,332 Margin of safety percentage 34.6% Margin of safety Budgeted sales revenue 746,518.332 2,160,000,000 Operating leverage ratio 2.89 Total contribution margin Net operating income 894,192,000 309,042,000 Cost structure: Total variable costs Total fixed costs Total costs 1,265,808,000 585,150,000 1,850,958,000 68.4% 31.6% 100.0%