Plum Company's income statement for the last is as follows:

Sales (2,500 units $16)		$40,000
Less variable expenses:
Cost of goods sold:
Direct materials	$7,500
Direct labor	6,000
Variable factory overhead	7,500
Selling and administrative	1,250	22,250
Contribution margin		$17,750
Less fixed expenses:
Factory overhead	$5,000
Selling and administrative	7,500	12,500
Net income (loss)		$ 5,250

In an attempt to improve the company's profit performance, management is considering a number of alternative actions. Required: Determine the effect of each of the following on monthly profit. Each situation is to be evaluated independently of all the others.

a.	Purchasing automated assembly equipment: This action should reduce direct labor costs by 50 percent. It also will increase variable overhead costs by 10 percent and fixed factory overhead by $1,250.
b.	Reducing the unit selling price by $1 per unit: This should increase the monthly sales by 2,500 units. Fixed factory overhead will increase by $750.
c.	Increase fixed selling and administrative expenses by $500 for advertising costs. The number of units sold will increase to 4,000 units.