Break-Even in Units and Sales Dollars, Margin of Safety Drake Company produces a single product. Last year's

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Question:

Break-Even in Units and Sales Dollars, Margin of Safety Drake Company produces a single product. Last year's income statement is as follows:

Sales (20,000 units) $1218000

Less: Variable costs 812000

Contribution margin $40600

Less: Fixed costs 300000

Operating income $106000

1. Compute the break-even point in units and sales revenue.

2. What was the margin of safety in dollars for Drake Company last year?

3. Suppose that Drake Company is considering an investment in new technology that will increase fixed costs by $250,200 per year, but will lower variable costs to 45 percent of sales. Units sold will remain unchanged. Prepare a budgeted income statement assuming Drake makes this investment.