ACT 460 discussion 2

A company’s margin of safety is defined by the sales volume and dollars which exceed its breakeven point. The degree of operating leverage is defined by the contribution margin divided by operating income. For this discussion:

• How might the calculation of the margin of safety be used for decision-making during a period of economic downturn?
• How might the degree of operating leverage be used for decision-making during a period of economic downturn?