A manufacturer of high-quality hand-crafted luggage sells 10,000 units per year at a selling price of $180 per unit. At the end of the current year, a new labor contract is being negotiated. The proposed contract calls for an increase of 12 percent in direct labor rates and would result in an increase of $10,000 per year in fixed costs. Data about current operations are shown below.

Management has asked you, the accountant, for assistance in estimating the results of several strategies that are being considered to offset the effects of the wage increase. You are to provide this assistance by answering the following questions:
1. If prices are unchanged, what volume of sales will be necessary to break even?
2. What sales price per unit will be necessary to keep profits at the present level if the number of units sold remains at 10,000 per year and the proposed labor contract takes effect?
3. If the selling price is increased by $10 per unit and there is a resulting decline of 2 percent in the number of units sold, what amount of profit should be anticipated, considering the proposed labor agreement?
4. What factors should management consider in deciding on a course of action?

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Sales price Variable costs Materials Labor (including taxes and fringe benefits) Factory overhead, selling expenses, and administrative expenses Fixed costs (based on a volume of 10,000 units per year) Per Unit $180 30 60 40 30