Chester has negotiated a new labor contract for the next round that will affect

Question

Chester has negotiated a new labor contract for the next round that will affect the cost for their product Coat. Labor costs will go from $7.91 to $8.41 per unit. Assume all period and variable costs as reported on Chester's Income Statement remain the same. If Chester were to pass on half the new labor costs to their customers, how many units of product Coat would need to be sold next round to break even on the product?

Balance Sheet SETS 2018 2019 Common Size 11.3% 9.9% 19.7% ash $18,713 $16,436 S32,587 S47,165 S14,667 S7,053 Receivable nventory otal Current Assets lant & Equipment $67.736 40.9% S68,885 $157,560 (S59,701) 95.1% -36.1 % $118,660 ($49,197) d Depreciation otal Fixed Assets $97.859 59.1 % S69,463 otal Assets $165,595 100.0% $138,348 ILITIES& OWNERS QUITY s Payable urrent Debt ong Term Debt $12,132 $24,246 $36,988 73% 14.6% 22.3% S9,017 S29,875 S26,604 otal Liabilities S73,366 44.3% S65,496 $9,924 $82,306 6.0% 49.7% ommon Stock S10,249 S62,604 ained Earnings Total Equity Total Liab. & O. Equity $92,230 55.7% S72,853 $165,595 100.0% $138,348

Explanation / Answer

Answer:

Analysis of above report:

Direct Labor per unit: $7.91.

Direct Labor Cost:    $13,352.

No. of units of Coat: 1,688 units.

Unit Selling Price in the previous year: $ 34.

New Labor Cost per unit:    $8.41

New Selling Price:    $34.25.

Period Cost:    $ 6,571

Total Variable Cost = $ 35,559.

For Break even, the operating income must be equal to zero.

34.25 * X = 35,559+ 6,571

X = 1,230 units.

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