Riveria Co. makes and sells a single product. The current selling price is $36 per unit. Variable expenses are $15 per unit, and fixed expenses total $38,500 per month. Sales volume for May totaled 4,760 units. Required:

1. Calculate operating income for May.
2. Calculate the breakeven point in terms of units sold and total revenues.
3. Management is considering installing automated equipment to reduce direct labor cost. If this were done, variable expenses would drop to $9 per unit, but fixed expenses would increase to $63,100 per month.

1. Calculate operating income at a volume of 4,760 units per month with the new cost structure.
2. Calculate the breakeven point in units with the new cost structure.
3. Why would you suggest that management seriously consider investing in the automated equipment and accept the new cost structure?
4. Why might management not accept your recommendation but decide instead to maintain the old cost structure?