Night Shades Inc. (NSI) manufactures biotech sunglasses. The variable materials

Question

Night Shades Inc. (NSI) manufactures biotech sunglasses. The variable materials cost is $5.43 per unit, and the variable labor cost is $3.13 per unit.

a.      What is the variable cost per unit?

b.      Suppose NSI incurs fixed costs of $720,000 during a year in which total production is 280,000 units. What are the total costs for the year?

c.       If the selling price is $19.99 per unit, does NSI break even on a cash basis? If depreciation is $220,000 per year, what is the accounting break-even point?

Explanation / Answer

a. Variable cost per unit = Variable material cost + variable labour cost

Variable cost per unit = $5.43 + $3.13 = $8.56

b. Total cost = fixed cost + Variable cost

Total cost = $720,000 + $8.56 * 280,000 = $3,116,800

c. Cash Break even Point = (Total Fixed Expenses - depreciation )/contribution margin per unit

($720,000 - $220,000) / $19.99 - $8.56 = 43,744.5

Break even point = total fixed expenses/contribution margin per unit = $720,000/$19.99 - $8.56

BEP = 62,992.12

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