Homework Answers
Sol:
To determine cash break-even point and accounting break-even point:
Cash break-even point = Fixed cost / (Unit price - Unit variable cost)
Accounting break-even point = (Fixed cost + Depreciation) / (Unit price - Unit variable cost)
Case 1
1a) Cash break-even point = 15,000,000 / (6,000 - 4,500)
Cash break-even point = 15,000,000 / 1,500 = 10000 units
1b) Accounting break-even point = (15,000,000 + 6,600,000) / (6,000 - 4,500)
Accounting break-even point = (15,000,000 + 6,600,000) / 1,500 = 14,400 units
Case 2
2a) Cash break-even point = 15,000 / (38 - 25.08)
Cash break-even point = 15,000 / 12.92 = 1,160.99 or rounded off to 1,161 units
2b) Accounting break-even point = (15,000 + 25,500) / (38 - 25.08)
Accounting break-even point = 40,500 / 12.92 = 3,134.67 or rounded off to 3,135 units
Case 3
3a) Cash break-even point = 700 / (8 - 3.16)
Cash break-even point = 700 / 4.84 = 144.63 or rounded off to 145 units
3b) Accounting break-even point = (700 + 525) / (8 - 3.16)
Accounting break-even point = (700 + 525) / 4.84 = 253.10 or rounded off to 253 units
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break-even and the cash break-even points. Ignore any tax effects
in calculating the cash break-even. (Do not round
intermediate calculations and round your answers to 2 decimal
places, e.g., 32.16.)
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