You Get What You Measure! The Plastic Glow Company makes glow sticks. It uses a process costing system and has had a just-in-time inventory policy.

You Get What You Measure! The Plastic Glow Company makes glow sticks. It uses a process costing system and has had a just-in-time inventory policy. The plant has the capacity to produce 500,000,000 units a year but currently operates at 300,000,000 units per year. Direct material and direct labor costs are variable, and manufacturing overhead is primarily fixed. Production costs for 2020 are as follows:

Number of units produced and sold
 300,000,000

Direct materials
$ 15,000,000

Direct labor
30,000,000

Manufacturing overhead
 105,000,000

Total costs
$150,000,000

Equivalent cost per unit
$0.50

Jim Taylor, the president, receives a bonus each year based on net operating profit and would like to reduce costs in 2021 so that profit will increase. He decides to take advantage of the excess plant capacity and increase production to 350,000,000 even though he expects the company will be unable to increase unit sales in 2021.
Required

If Jim increases production to 350,000 units per year, what will be the new equivalent cost per unit?
Would increasing the production level be a good idea? Why or why not?

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