Ellis Company produces a single product. Last year's income statement is as follows:-

Required:
1. Compute the break-even point in units and sales dollars.
2. What was the margin of safety for Ellis Company last year?
3. Suppose that Ellis 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% of sales.
Units sold will remain unchanged. Prepare a budgeted income statement assuming El¬
lis makes this investment. What is the new break-even point in units, assuming the in¬
vestment is made?

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Sales (29,000 units) Less: Variable costs Contribution margin Less: Fixed costs Operating income $1,218,000 812,000 $ 406,000 300,000 $ 106,000