Communication: William Dexter Has Been the Manager for Two Years

Communication: William Dexter has been the manager for two years of the production department of a company manufacturing toys made of plastic-coated cardboard. One of the toys is a paper doll, whose 'clothes' are made of acetate, and stay on the doll with static electricity. The company's sales were mainly to large educational institutions until last year, when the dolls were sold for the first time to a large discount retailer. The dolls were sold out immediately, and enough orders received to keep the department at full capacity for the immediate future.
The fixed costs for the department are $50,000, with $1 per unit variable costs. Each set consists of a doll and one set of clothes and sells for $3. The maximum volume is 100,000 units. With the increased volume, Mr Dexter is considering two options to improve profitability. One would reduce variable costs to $0.75, and the other would reduce fixed costs to $35,000.
Required
Given the fact that sales are increasing, make a short (one paragraph) recommendation to Mr Dexter about which option he should choose. Support your recommendation with a calculation showing him how profitability will change with each option.