Question

Assume a firm is purchasing new equipment for a project. The selling price of the product along with the variable cost, fixed costs and annual depreciation expense have been determined. The firm is about to calculate its accounting, cash and financial break even points. Which break even points will the project reach first, then second and finally last

Answer 1

Answer:

cash break even point first followed by the accounting break even point and then finally the financial break even point.

Explanation:

As we know that

The cash break even point is

= Fixed Cost ÷ Contribution Margin

The Accounting Break Even Point is

= (Fixed Cost + Depreciation) ÷ Contribution Margin

And, the Financial Break Even Point is

= (Fixed Cost + Depreciation + Interest) ÷  Contribution Margin

So as we can see that the first the cash break even point, than the accounting break even point and the last is financial break even point

So, the first option is correct