The following monthly data are available for the Challenger Company and its only product, Product SW:

Total Per Unit

Sales $(400$ units$)$ $$110,000$ $$275$

Variable expenses $44,000110$

Contribution margin $$66,000$ $$165$

Fixed expenses $52,800$

Net income $$13,200$

Required:

a$)$ Without resorting to calculations, what is the total contribution margin at the break$-$even point?

b$)$ Management is contemplating the use of plastic gearing rather than metal gearing in Product SW$.$ This change would reduce variable costs by $$15.$ The company's marketing manager predicts that this would reduce the overall quality of the product and thus would result in a decline in sales to a level of $350$ units per month. Should this change be made?

c$)$ Assume that Challenger Company is currently selling $400$ units of Product SW per month. Management wants to increase sales and feels that this can be done by cutting the selling price by $$25$ per unit and increasing the advertising budget by $$20,000$ per month. Management believes that these actions will increase unit sales by $50\%.$ Should these changes be made?

d$)$ Assume that Challenger Company is currently selling $400$ units of Product SW$.$ Management wants to automate a portion of the production process for Product SW$.$ The new equipment would reduce direct labour costs by $$20$ per unit but would result in a monthly rental cost for the new robotic equipment of $$10,000.$ Management believes that the new equipment will increase the reliability of Product SW$,$ thus resulting in an increase in monthly sales of $12\%.$ Should these changes be made?