BREAK-EVEN UNITS, OPERATING INCOME, MARGIN OF SAFETY 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:

. Compute the break-even point in units.

. 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?

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

Problem