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. 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 three decimal places. Round your final answer to the nearest whole unit
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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
| 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 three decimal places. Round your final answer to the nearest whole unit.
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