Ontario, Inc. currently sells its only product for $40 each. The variable cost per unit is $32 and the firm has $14,000 of fixed costs. Management can lower variable costs to $30 per unit if it increases fixed costs to $19,000.

Required:

a. Determine whether Ontario, Inc. should change its cost structure assuming the firm is currently operating at its breakeven point.

b. Assume that Ontario, Inc. currently sells 2,000 units of its product. Determine if management should adopt the new cost structure.