Jay Manufacuring's sales slumped badly in 2011 due to so many people purchasing gifts online. The company's income statement showed the following results from selling 500,000 units of product: Net sales, $2,000,000; total costs and expenses, $2,500,000; and net loss of $500,000. Costs and expenses consisted of the following:
Management is considering the following alternative for 2012:
Purchase new automated equipment that will change the proportion between variable and fixed costs to 40% variable and 60% fixed.
A. Determine the selling price per unit.
B. Compute the break-even point in dollars for 2011.
C. Compute the break-even point in dollars under the alternative course of action for 2012.
D. Which course of action do you recommend? Justify your answer.