Chapter 20, Problem 3CMA

Bolger and Co. manufactures large gaskets for the turbine industry. Bolger’s per-unit sales price and variable costs for the current year are as follows:

Bolger’s total fixed costs aggregate to $360,000. Bolger’s labor agreement is expiring at the end of the year, and management is concerned about the effects of a new labor agreement on its break-even point in units. The controller performed a sensitivity analysis to ascertain the estimated effect of a $10-per-unit direct labor increase and a $10,000 reduction in fixed costs. Based on these data, the break-even point would:

1. a. decrease by 1,000 units.
2. b. decrease by 125 units.
3. c. increase by 375 units.
4. d. increase by 500 units.