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

Question

Baldwin has negotiated a new labor contract for the next round that will affect the cost for their product Bolt. Labor costs will go from $7.91 to $8.41 per unit. In addition, their material costs have fallen from $13.66 to $12.66. 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 Bolt would need to be sold next round to break even on the product? Select: 1 529 490 1,793 540

Explanation / Answer

The new price is set at $7.91+$0.25+$13.66-$0.50=$21.32. This is because the half of the decrease or an increase in the cost is transferred to the customers.

The change in the cost is $0.50-$1=(-)$0.50. The change in the price is $0.25-$0.50=(-)$0.25.

So the break even production will be at an output level where the sale multiplied by the change in the cost is equal to the change in the price multiplied by the change in the sales.

Thus the product sold will be 1,529.

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.