Perez Company currently produces and sells 7,300 units annually of a product that has a variable cost of $7 per unit and annual fixed costs of $303,600. The company currently earns a $76,000 annual profit. Assume that Perez has the opportunity to invest in new labor-saving production equipment that will enable the company to reduce variable costs to $5 per unit. The investment would cause fixed costs to increase by $10,900 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 Perez invests in the new production equipment.