[5 Marks] The following monthly data are available for the Challenger Company and its only product, Product SW:

	Total	Per Unit
Sales (400 units)	$110,000	$275
Variable expenses	44,000	110
Contribution margin	$66,000	$165
Fixed expenses	52,800
Net income	$13,200

Required: Make sure that you show all of your calculations for full marks and that they are properly labelled.

a) [2.5 Marks] Assume that Challenger Company is currently selling 400 units of Product SW per month. Management wants to increase sales and feels that this can be done by cutting the selling price by $25 per unit and increasing the advertising budget by $20,000 per month. Management believes that these actions will increase unit sales by 50%. Should these changes be made? ANSWER THE QUESTION USING INCREMENTAL ANALYSIS.

b) [2.5 Marks] Assume that Challenger Company is currently selling 400 units of Product SW. Management wants to automate a portion of the production process for Product SW. The new equipment would reduce direct labour costs by $20 per unit but would result in a monthly rental cost for the new robotic equipment of $10,000. Management believes that the new equipment will increase the reliability of Product SW, thus resulting in an increase in monthly sales of 12%. Should these changes be made? ANSWER THE QUESTION USING INCREMENTAL ANALYSIS.