Question

In each of the following cases, calculate the accounting break-even and the cash break-even points. Ignore any tax effects in calculating the cash break-even. (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16.) Case Unit Price Unit Variable Cost Fixed Costs Depreciation 1 $ 3,340 $ 2,655 $ 7,120,000 $ 1,850,000 2 141 79 86,000 340,000 3 30 7 3,600 760 Case Accounting break-even Cash break-even 1 2 3

Answer 1

Answer:

Hence,

                    Accounting Break even                Cash break even

Case 1                     $13,094                                           $10,394

Case 2                    $6,870                                             $1,387

Case 3                     $189                                                 $15

Explanation:

The formula to compute accounting break even and cash break even points is shown below:

Accounting Break even = (Fixed cost + depreciation) ÷ (unit price - unit variable cost )

Cash break even = Fixed cost ÷ (unit price - unit variable cost )

Case 1:

Accounting Break even = ($7,120,000 + 1,850,000) ÷ (3,340 - 2655)

                                         = 13,094

Cash break even = ($7,120,000) ÷ (3,340 - 2655)

                             = 10,394

Case 2:

Accounting Break even = ($86,000 + $340,000) ÷ (141 - 79)

                                         = 6870

Cash break even = ($86,000) ÷ (62)

                             = 1,387

Case 3:

Accounting Break even = ($3,600 + 760) ÷ (30 - 7)

                                         = 189

Cash break even = ($3,600) ÷ (30 - 7)

                             = 156

Hence,

                    Accounting Break even                Cash break even

Case 1                     $13,094                                           $10,394

Case 2                    $6,870                                             $1,387

Case 3                     $189                                                 $156