Peterson Company produces a single product, Item 0916. Last year (2021) Peterson sold 40,000 units of Item 0916. The total revenue for those 40,000 units was $1.5 million. Peterson's manufacturing facility is old and their equipment is outdated and their processes do not take advantage of automation and as a result their manufacturing is very labor intense. Peterson's direct labor cost per unit for Item 0916 is $13.50. The remaining variable costs per unit are $5.00 and $4.00 per unit for direct materials and other variable costs, respectively. Currently, Fixed costs per year total $480,000. Next year (2022), it is estimated that due to wage increases for all employees, the direct labor cost will increase by $3.00 per unit of Item 0916. The following year (2023), Peterson plans to recondition their equipment and modernize the physical plant. These changes will slash the original (2021) variable cost by 40% and will increase fixed cost by 90%.

Solution 2022

Based on the changes described in the DATA,

Compute the new contribution margin and contribution margin ratio per unit for Item 0916

Compute the 2022 break-even in units for Peterson Company

Compute the 2022 break-even in dollars for Peterson Company

Calculate Net Operating Income

Compute the number of units of Item 0916 that will have to be sold in order to maintain the operating income that you calculated for 2021

Compute the selling price that would have to be charged in order to maintain the same contribution margin ratio that you calculated for 2021