the following monthly budgeted data are available for the stark company: stark company has budgeted…

the following monthly budgeted data are available for the stark company: stark company has budgeted operating income for the month is $220,000 from these three products. submission instructions: a) calculate the break - even sales (in total dollars) for the month b) calculate the margin of safety (in total dollars) c) calculate the degree of operating leverage.

the following monthly budgeted data are available for the stark company: stark company has budgeted operating income for the month is $220,000 from these three products. submission instructions: a) calculate the break - even sales (in total dollars) for the month b) calculate the margin of safety (in total dollars) c) calculate the degree of operating leverage.

Answer

Explanation:

Step1: Calculate total fixed expenses

Total contribution margin = (200000 + 90000+180000=$470000) Operating income = Contribution margin - Fixed expenses. So, Fixed expenses (F=470000 - 220000=$250000) Total sales (S=500000 + 300000+900000=$1700000) Total contribution - to - sales ratio (r=\frac{470000}{1700000})

Step2: Calculate break - even sales (a)

Break - even sales (BE=\frac{F}{r}=\frac{250000}{\frac{470000}{1700000}}=\frac{250000\times1700000}{470000}\approx$893617.02)

Step3: Calculate margin of safety (b)

Margin of safety (MOS = S - BE=1700000 - 893617.02=$806382.98)

Step4: Calculate degree of operating leverage (c)

Degree of operating leverage (DOL=\frac{\text{Contribution margin}}{\text{Operating income}}=\frac{470000}{220000}\approx2.14)

Answer:

a) ($893617.02) b) ($806382.98) c) (2.14)