Marco Handbags has two alternatives for manufacturing their handbags.

The first alternative is to rent a machine to make the handbags. With this alternative the total fixed costs of operating the workshop for a month would be $20,000. The material costs for each handbag would be $40 and there would be employee labour of 1 hour. Employees are paid $30 an hour.

The second alternative is to use a manual production process. In this case the fixed costs of operating the workshop for a month would be $6,000. Each handbag still requires materials which cost $40 but it would take 2 hours of labour to make each handbag. Employees are still be paid $30 an hour.

The handbags are sold for $120 each and expected sales are 500 handbags per month.

(a) For each option what is the break-even point in units (handbags)?

(b) Prepare a contribution margin income statement for each option. Which option would provide the highest monthly profit?