Moon Products sells pillows for $90 per unit. The variable expenses are $63 per pillow and the fixed costs are $135,000 per month. The company sells 8,000 pillows per month.

The sales manager is recommending a 10% reduction in selling price, which he believes will produce a 25% increase in the number of pillows, sold each month.

Prepare contribution margin income statements for:

1. Current operating conditions (7.5%)
2. If the proposed changes are made (7.5%)
3. Should the sales manager’s suggestion be implemented? (5%)