Kallard Manufacturing Company produces T-shirts screen-printed with the logos of various sports teams. Each shirt is priced at $13.50 and has a unit variable cost of $9.85. Total fixed cost is $197,600.
1. Compute the break-even point in units.
2. Suppose that Kallard could reduce its fixed costs by $23,500 by reducing the amount of setup and engineering time needed. How many units must be sold to break even in this case?
3. Conceptual Connection: How does the reduction in fixed cost affect the breakeven point? Operating income? The margin of safety?