Drake 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 Drake Company last year?
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. What is the new breakeven point in units, assuming the investment is made?

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Sales (20,000 units) Less: Variable costs Contribution margin Less: Fixed costs Operating income $1,218,000 812,000 $ 406,000 300,000 $ 106,000