1. You are presented with the following cost information for one of Jay Ltds products:

Per unit selling price	$950
Per unit direct material costs	$200
Per unit direct labour costs	$120
Per unit variable manufacturing costs	$130
Total fixed manufacturing costs	$800,000
Total fixed marketing costs	$100,000
Current sales	2,500 units

1. Management is currently considering two options to improve the profit from the product:

Option A quality improvements
Increase in direct material cost	$90 per unit
Increase in direct labour costs	$60 per unit
Increase in variable manufacturing costs	$50 per unit
Increase in fixed manufacturing costs	$600,000
Increase in selling price	$450 per unit
Expected sales are	1,550 units
Total fixed marketing costs remain unchanged

Option B removing product features
Decrease in direct material costs	$70 per unit
Decrease in direct labour costs	$30 per unit
Decrease in variable manufacturing costs	$50 per unit
Increase in fixed manufacturing costs	$447,500
Decrease in selling price	$100 per unit
Expected sales	3,000 units
Total fixed marketing costs remain unchanged

1. Calculate the break-even point, expected profit and dollar margin of safety for each option.

2. Recommend what option management should adopt (including the current situation as an option). Justify your recommendation by referring to the options break-even points, expected levels of profit and dollar margins of safety.