Dory Manufacturing Company produces T-shirts screen-printed with the logos of various sports teams. Each shirt is priced at $10 and has a unit variable cost of $5. Total fixed costs are $96,000.

Required:

1. Compute the break-even point in units.

2. Suppose that Dory could reduce its fixed costs by $13,500 by reducing the amount of setup and engineering time needed. How many units must be sold to break even in this case?

3. How does the reduction in fixed costs affect the break-even point? Operating income? The margin of safety?