Evaluating simultaneous changes in fixed and variable costs Ramirez Company currently produces and sells 10,000 units of a telephone per year that has a variable cost of $13 per unit and a fixed cost of $380,000. The company currently earns a $120,000 annual profit. Assume that Ramirez has the opportunity to invest in a new machine that will enable the company to reduce variable costs to $10 per unit. The investment would cause fixed costs to increase by

$15,000.

Required

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

b. Prepare a contribution margin income statement assuming Ramirez invests in the new technology.

Recommend whether Ramirez should invest in the new technology.