Night Shades Inc. (NSI) manufactures biotech sunglasses. The variable materials
ID: 2651459 • Letter: N
Question
Night Shades Inc. (NSI) manufactures biotech sunglasses. The variable materials cost is $2.01 per unit, and the variable labor cost is $2.81 per unit.
What is the variable cost per unit? Suppose NSI incurs fixed costs of $540,000 during a year in which total production is 270,000 units. What are the total costs for the year? If the selling price is $10.7 per unit, what is the NSI break-even quantity on a cash basis? If depreciation is $189,000 per year, what is the accounting break-even quantity?
Explanation / Answer
Answer: Variable cost per unit=variable material cost + variable labor cost
=$2.01+$2.81=4.82 per unit
Total cost =Variable cost +fixed cost
=(270000*4.82)+$540000
=1841400
NSI break-even quantity on a cash basis=(Fixed cost - Depreciation)/Contribution per unit
=(540000-189000)/(10.7-4.82)
=59693.88 units
Accounting break even Quantity= 540000/5.88=91836.73 units
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