Drake Company produces a single product. Last year’s income statement is as follows:
Sales (20,000 units) ………..$1,218,000
Less: Variable costs ……………812,000
Contribution margin …………$ 406,000
Less: Fixed costs ………………300,000
Operating income ……………$ 106,000
Required:
1. Compute the break even point in units and sales dollars.
2. What was the margin of safety for Drake Company last year?
3. Suppose that Drake Company is considering an investment in new technology that will increase fixed costs by $250,000 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. What is the new break even point in units, assuming the investment is made?
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