Franklin Company currently produces and sells 7,800 units annually of a product that has a variable cost of $6 per unit and annual fixed costs of $420,000. The company currently earns a $87,000 annual profit. Assume that Franklin has the opportunity to invest in new labor-saving production equipment that will enable the company to reduce variable costs to $4 per unit. The investment would cause fixed costs to increase by $9,900 because of additional depreciation cost.

Required

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

2. Prepare a contribution margin income statement, assuming that Franklin invests in the new production equipmen