Sandy Point Computer Accessories has a new product to manufacture. They have a choice of renting equipment, or purchasing the equipment. The sales forecast is for 1800 units, and is not affected by the choice of equipment. The rented equipment would create a scenario with less fixed costs, but a higher variable cost. Here are the two scenarios:

Scenario One Rented Equipment Scenario Two Purchased Equipment

Selling Price $ 42.00 Selling Price $ 42.00

Variable Costs $ 32.00 Variable Costs $ 12.00

Fixed Costs $10,000.00 Fixed Costs $ 42,000.00

Analyze this situation for the Production Manager, Doug Fredrick. Discuss the margin of safety in both scenarios, the possible effect if the sales forecast is wrong, (higher or lower), and any other issues you see in this case. Write a short memo with your advice.