drake company produces a single product last year s income stat 274247

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?