Campbell Company currently produces and sells 7,400 units annually of a product that has a variable cost of $9 per unit and annual fixed costs of $364,000. The company currently earns a $80,000 annual profit. Assume that Campbell has the opportunity to invest in new labor-saving production equipment that will enable the company to reduce variable costs to $7 per unit. The investment would cause fixed costs to increase by $10,800 because of additional depreciation cost.

Required

a)Use the equation method to determine the sales price per unit under existing conditions (current equipment is used).

b)Prepare a contribution margin income statement, assuming that Campbell invests in the new production equipment.