Heavenly Cupcakes Has a Monthly Target Operating Income of $12,000

Heavenly Cupcakes has a monthly target operating income of $12,000. Variable expenses are 40% of sales and monthly fixed expenses are $8,000.
Requirements:
a. What is the monthly margin of safety in dollars if the business achieves its operating income goal?
b. What is the monthly margin of safety as a percentage of target sales in dollars?
c. What is Heavenly Cupcakes' operating leverage factor at the target level of operating income?

Correct Answer:

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