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Explain margin of safety and operating leverage

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Reference no: EM131756139

Question: Due to erratic sales of its sole product a disposable pocket camera Markline Company has been experiencing difficulty for some time. The Company's contribution format income statement for the most recent month is given below:

Sales (30,000 units x $20.00 per unit)

$600,000

Variable Expenses

360,000

Contribution Margin

240,000

Fixed Expenses

250,000  

Net Operating Loss

$(10,000)

1. Compute the company's CM ratio and its break-even point in both units and dollars. Explain what CM ratio and break-even means.

2. Explain margin of safety and operating leverage. How would these apply to question 1.

Reference no: EM131756139

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