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 $ 2,800 $ 2,295 $ 7,000,000 $ 1,250,000
2 51 43 65,000 160,000
3 12 4 1,800 700
Case Accounting break-even Cash break-even
1
2
3

Answer 1

Answer:

Accounting break-even

Case  

1        11,386.13  units

2          = 28125  units

3            312.5  units

Cash break-even

Case          Break-even                    

1          =     13,861.38

2        =     8125

3          =      312.5

Explanation:

Accounting break even is computed as

Break-even = (total fixed cost + depreciation ) /selling price - variable cost per unit

Case

1       =  (7,000,000 + 1,250,000)/(2,800- 2,295)= 11386.13861

2         (65,000 +160,000)/(51-43 ) unit = 28125

3            (1,800 + 700)/  (12- 4)= 312.5

Cash break even

Under here only cash based fixed cost would be used , depreciation would be ignored. This is so because it is not a fixed cost .

Break-even = (total fixed cost ) /selling price - variable cost per unit

1       =  (7,000,000 )/(2,800- 2,295)= 13,861.38

2         (65,000 )/(51-43 ) unit = 8125

3            (1,800 + 700)/  (12- 4)= 312.5