Break-Even in Units and Sales Dollars, Margin of Safety: Drake Company produces a single product....
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Accounting
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)
$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 revenue. In your computations, round the unit contribution margin and 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 $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.
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