Baldwin has negotiated a new labor contract for the next round that will affect
ID: 1175019 • Letter: B
Question
Baldwin has negotiated a new labor contract for the next round that will affect the cost for their product Baker. Labor costs will go from $2.04 to $2.54 per unit. In addition, their material costs have fallen from $6.82 to $5.82. Assume all period costs as reported on Baldwin's Income Statement remain the same. If Baldwin were to pass on half the new costs of labor and half the savings in materials to customers by adjusting the price of their product, how many units of product Baker would need to be sold next round to break even on the product?
Select: 1 1,241 896 870 777Explanation / Answer
PRODUCT : BAKER
Present SP= $17
Units sold= Sales/Price
= 20045/17 = 1179 units (Also given in the data)
Additional cost of labour= 2.54- 2.04 = 0.5
Additional saving in material = 6.82- 5.82 = $1
New SP = $17+0.5/2- ½ = $16.75
Break even units= Fixed costs/ (SP- Variable costs)
= 7300/ (16.75- 2.54-5.82)
= 870 units
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