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 Crimp. Labor costs will go from $7.82 to $8.42 per unit. Assume all period and other variable costs remain the same. If Chester were to absorb the new labor costs without passing them on in the form of higher prices, how many units of product Crimp would need to be sold next round to break even on the product?

Current Selling Price = $34.00

Total Period Cost = 6,383.00

Units sold last year = 1,264

Explanation / Answer

Answer:-

Variable cost last year =selling price - period cost /units produced

= 34-(6383/1264)= 28.5

Period cost = fixed cost = 6383

Variable cost =28.5+8.42-7.82=29.10

Break even point (units) = fixed cost/contribution margin

Contribution margin= selling price- Variable cost

= 34-29.10= 4.90

Break even= 6383/4.90= 1302.65 = 1303

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