Jay Manufacturing's sales slumped badly in 2006 due to so many people purchasing gifts online. The company's income statement showed the following result from selling 500,000 units of product: Net sales, $2,000,000; tota cost and expenses, $2,500,000; and net loss of $500,000. Costs and expenses consisted of the following:

Cost of goods sold: total $2,000,000 Variable $1,300,000 Fixed $700,000

Selling Expenses: total $200,000 Variable : 50,000 Fixed $150,000

Administrative Expense: total 300,000 Variable $150,000 Fixed $150,000

Management is considering the following alternative for 2007:

Purchase new automated equipment that will change the proportion between variable and fixed cost to 40% variable and 60% fixed.

instructions

A. Determine the selling price per unit.

B. Compute the break-even point in dollars for 2006

C. Compute the break-even point in dollars under the alternative course of action for 2007.

D. Which course of action do you recommend? Justify your answer.