Wally's Repair Shophas a monthly target operating income of $40,000. Variable expenses are 60% of sales, and monthly fixed expenses are

$10,000. Hint: The contribution margin ratio = 100% - Variable expenses percentage of sales.

1.	Compute the monthly margin of safety in dollars if the shop achieves its income goal.
2.	Express Wally's margin of safety as a percentage of target sales.
3.	What is Wally's operating leverage factor at the target level of operating income?
4.	Assume that the company reaches its target. By what percentage will the company's operating income fall if sales volume declines by 7%?

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.

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Margin of safety in dollars