Break-Even in Units and Sales Dollars, Margin of Safety Drake Company produces a

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 (21,000 units) $1,260,000 Less: Variable costs 850,500 Contribution margin $409,500 Less: Fixed costs 259,600 Operating income $149,900

3. Suppose that Drake Company is considering an investment in new technology that will increase fixed costs by $248,900 per year, but will lower variable costs to 40 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.

Net income

Drake Company Budgeted Income Statement Sales $ Less: Variable costs Contribution margin $ Less: Fixed costs

Net income

$
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.

Explanation / Answer

Prepare a budgeted income statement assuming Drake makes this investment. Round all amounts to the nearest dollar.

Break even point = 508500/36 = 14125 units

Sales 1260000 Less: Variable cost -504000 Contribution margin 756000 Less: Fixed cost (259600+248900) -508500 Net income 247500

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