Foxx Company manufactures a water sealant at the Orange County Plant. This sealant is used to stop leaks in basements or in concrete retainer walls. In 1996, the company sold 1,600,000 gallons of the sealant at a price of $3.00 per gallon with a variable production cost per gallon of $1.50. The fixed manufacturing costs were $1,550,000. In 1997, new automated equipment will be used in production. This will increase the fixed manufacturing costs for the year to $1,785,000. The variable production cost per gallon has been estimated at $1.30 per gallon. The sales division estimates that sales volume can be increased by 12.5 percent in 1997.

Required:
1. For 1996, compute the break-even point in gallons and revenues.
2. For 1997, compute the break-even point in gallons and revenues.
3. Using the cost and revenue data for 1996, consider each of the following situations independently:
(a) What is the effect in gallons on the break-even point for the decrease in variable cost from $1.50 per gallon to $1.30 per gallon?
(b) What is the effect in gallons on the break-even point for the increase in fixed cost of $235,000?
4. For 1997, calculate the operating leverage factor and the margin of safety, after making all estimated changes.