Vernon Company currently produces and sells 7,400 units annually of a product that has a variable cost of $17 per unit and annual fixed costs of $298,800. The company currently earns a $86,000 annual profit. Assume that Vernon has the opportunity to invest in new labor-saving production equipment that will enable the company to reduce variable costs to $15 per unit. The investment would cause fixed costs to increase by $9,700 because of additional depreciation cost.

Required

Use the equation method to determine the sales price per unit under existing conditions (current equipment is used).

Prepare a contribution margin income statement, assuming that Vernon invests in the new production equipment.