First, calculate the current breakeven point; then, calculate the breakeven point after the new labor agreement takes effect; and finally, determine the difference. Breakeven point in units = Fixed cost / Contribution Margin per Unit The current contribution margin per unit is $300 ? $210, or $90. Thus the current breakeven point is $360,000 ÷ $90 = 4,000 units. With the changes in costs, the contribution margin per unit will change to $300 ? $220, or $80 and fixed costs will decrease to $350,000. The new breakeven point will be $350,000 ÷ $80, or 4,375 units. The increase in the breakeven point is 4,375 – 4,000, or 375 units.
This is the estimated $10,000 reduction in fixed costs divided by the $80 unit contribution margin after the direct labor increase ($300 ? [$210 + $10]). To answer this question correctly, it is necessary to first, calculate the current breakeven point; then, calculate the breakeven point after the new labor agreement takes effect; and finally, determine the difference.
The way to solve this problem is to first, calculate the current breakeven point; then, calculate the breakeven point after the new labor agreement takes effect; and finally, determine the difference. This answer results from calculating the breakeven point after the new labor contract takes effect without decreasing fixed costs for the $10,000 cost savings expected.
This is the estimated $10,000 reduction in fixed costs divided by the $10 per unit direct labor increase (which leads to a $10 per unit decrease in the contribution margin). To answer this question correctly, it is necessary to first, calculate the current breakeven point; then, calculate the breakeven point after the new labor agreement takes effect; and finally, determine the difference.
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