In an effort to increase sales and profits, management is considering the use of a higher quality speaker. The higher-quality speaker would increase variable costs by $3 per unit, but management could eliminate one quality inspector who is paid a salary of $30,000 per year. The sales manager estimates that the higher-quality speaker would increase annual sales by at least 20%.
a) Assuming that changes are made as described above, prepare a projected contribution format income statement for next year. Show data on a total, per unit, and percentage basis.
b) Compute the company's new break-even point in both units and dollars of sales. Use the formula method.
c) Would you recommend that the changes be made?