Case 4 Forest Company makes a variety of gas and liquid valves for commercial use. Its KZ12-9 gas valve sells for $110 each. The valve has been produced for 8 years with production processes that are now somewhat obsolete. Virtually, all of the grinding, polishing, and assembly is done with manually operated machinery. The company's new chief production engineer developed a proposal to automate much of the production process for KZ12-9 valves, in particular the grinding and polishing operations. The new equipment would be leased from the company's leasing division. The fixed cost of production will increase with the new production plan, but the variable costs per valve will decrease. Expected sales for next year are 8,000 units. Estimated production costs for the coming year are presented below: Production Method Current Proposed Annual fixed costs Equipment lease cost $ 20,000 $160,000 Occupancy cost 35,000 60,000 Insurance 7,000 20,000 Property tax 8,000 10,000 Selling and administrative 50,000 50,000 $ 25 $ 27 Variable cost per valve Direct materials Direct labor Variable overhead Selling and administrative Required: 1. Compute the cost indifference point for the two production method. 2. Compute the break-even point for each alternative. The company may have to raise the price of the XZ12-9 valves by $10 if it does not switch to the new production method. Discuss the effect of the price increase on the cost indifference point. 4. The chief engineer prevails the proposed production method is used. Based on the expected sales level, what is the cost of this decision? 5. Compute the margin of safety for each alternative using the expected sales level