Question

Andrews has a new design for their product Axe next round that can reduce their material cost of producing units from $8.13 to $7.33. Andrew passes on one quarter of all cost savings by cutting the current price to customers. For simplicity: Current selling price = $19.00; Use current labor costs of $4.02; Use period costs of $7,260 (from Income Statement).

Required:
Determine the new selling price to break even next round.

Answer 1

$18.80

Step-by-step explanation:

New selling price = Old selling price - Adjustments

Old selling price = $19.00, Adjustments = 1 quarter of reduced raw material costs difference

New selling price = $19.00 - ($8.13 - $7.33)/4

New selling price = $19.00 - $0.20

New selling price = $18.80

So, the new selling price to break even next round is $18.80.