3. Musgrave Corp. has fixed costs of $46,000 and variable costs that are 30% of the current sales price of $2.15 per unit. At this price, they sell 40,000 units. Musgrave can increase sales by 10,000 units by cutting its unit price from $2.15 to $1.95, but the rate of variable cost per unit will still be 30% of the new sales price.

1. What is the change in EBIT if Musgrave decides to cut its price? (6 points)

2. What is the DOL at BOTH sales levels?