Evaluating simultaneous changes in fixed and variable costs Kendall Company currently produces and sells 9,000 units annually of a product that has a variable cost of $15 per unit and annual fixed costs of $240,000. The company currently earns a $30,000 annual profit. Assume that Kendall has the opportunity to invest in new labor-saving production equipment that will enable the company to reduce variable costs to $13 per unit. The investment would cause fixed costs to increase by $12,000 because of additional depreciation cost.

Required

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

b. Prepare a contribution margin income statement, assuming that Kendall invests in the new production equipment. Recommend whether Kendall should invest in the new equipment.