Question Content Area 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 (25,000 units)$1,547,500 Less: Variable costs1,005,000    Contribution margin$542,500 Less: Fixed costs296,300    Operating income$246,200 Required:   Question Content Area 1. Compute the break-even point in units and sales revenue. In your computations, round the contribution margin per unit to the nearest cent and round the contribution margin ratio to four decimal places. Round your final answers to the nearest whole unit or dollar.   Break-even 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.   Question Content Area 3. Suppose that Drake Company is considering an investment in new technology that will increase fixed costs by $206,500 per year, but will lower variable costs to 42 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.   Drake Company Budgeted Income Statement   Sales $Sales 1,547,500   Less: Variable costs Less: Variable costs   Contribution margin $Contribution margin   Less: Fixed costs Less: Fixed costs   Net income $Net income Question Content Area 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.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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 (25,000 units)$1,547,500

Less: Variable costs1,005,000

   Contribution margin$542,500

Less: Fixed costs296,300

   Operating income$246,200

Required:

 

Question Content Area

1. Compute the break-even point in units and sales revenue. In your computations, round the contribution margin per unit to the nearest cent and round the contribution margin ratio to four decimal places. Round your final answers to the nearest whole unit or dollar.

 

Break-even 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.

 

Question Content Area

3. Suppose that Drake Company is considering an investment in new technology that will increase fixed costs by $206,500 per year, but will lower variable costs to 42 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.

 

Drake Company

Budgeted Income Statement

 

Sales

$Sales

1,547,500

 

Less: Variable costs

Less: Variable costs

 

Contribution margin

$Contribution margin

 

Less: Fixed costs

Less: Fixed costs

 

Net income

$Net income

Question Content Area

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.

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