COST-VOLUME-PROFIT, MARGIN OF SAFETY Victoria Company produces a single product. Last year’s income statement is as follows:

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

. Compute the break-even point in units and sales dollars.

. What was the margin of safety for Victoria Company last year?

. Suppose that Victoria 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 that Victoria makes this investment. What is the new break-even point in units and sales dollars, assuming that the investment is made?

Problem