Problem 16.40 (Algorithmic) 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 (22,000 units)	$1,331,000
Less: Variable costs	921,800
Contribution margin	$409,200
Less: Fixed costs	284,200
Operating income	$125,000

Required:

1. Compute the break-even point in units and sales revenue. In your computations, round the contribution margin per unit to the nearest cent and round the contribution margin ratio to four decimal places. Round your final answers to the nearest whole unit or dollar.

Break-even units		units
Break-even dollars	$

2. What was the margin of safety in dollars for Drake Company last year? Round your final answer to the nearest whole dollar. $

3. Suppose that Drake Company is considering an investment in new technology that will increase fixed costs by $237,200 per year, but will lower variable costs to 44 percent of sales. Units sold will remain unchanged. Prepare a budgeted income statement assuming Drake makes this investment. Round all amounts to the nearest dollar.

Drake Company
Budgeted Income Statement
		$
		$
		$

What is the new break-even point in units, assuming the investment is made? In your computations, round the unit contribution margin to the nearest cent. Round your final answer to the nearest whole unit. ???? units