Question

Sheridan’s Candles will be producing a new line of dripless candles in the coming years and has the choice of producing the candles in a large factory with a small number of workers or a small factory with a large number of workers. Each candle will be sold for $10. If the large factory is chosen, the cost per unit to produce each candle will be $2.00. The cost per unit will be $6.80 in the small factory. The large factory would have fixed cash costs of $1.50 million and a depreciation expense of $300,000 per year, while those expenses would be $480,000 and $100,000, respectively, in the small factory.

Calculate the pretax operating cash flow break-even point for both factory choices for Sheridan’s Candles.

1.The pretax operating cash flow breakeven point for the large factory is ? (units )

2. pretax operating cash flow breakeven point the small factory is?(units)

Answer 1

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