AP Gabriella and Julio operate Tacos Locos out of a food truck. They sell made-to-order burritos, tacos, and burrito bowls for a set price of $8 per order. Each of their items (either one burrito, three tacos, or a burrito bowl) costs them, on average, $3.50 for the protein, rice, and veggies that customers choose. Their food truck expenses include licensing costs of $200 per year, insurance of $1,190 per year, and depreciation on the truck of $5,000 per year.

Required

1. What is the break-even point in units (number of orders) for Tacos Locos?

2. Calculate Tacos Locos’ operating income for the year if it sells 2,000 orders this year.

3. Calculate its operating income for the year if it sells 3,500 orders this year.

4. If it does sell 3,500 orders this year, what is the margin of safety in both units and sales dollars?