a) Using the information provided and results obtained above, apply formula to c

Question

a) Using the information provided and results obtained above, apply formula to compute

(i) Accounting Break-even

(ii) Cash break-even (ignoring taxes) quantity of sales.

Show Work and properly "label" results.

b) Bonus: Using the information provided and results obtained AND Excel's "Goal Seek" function, compute

(i) Cash break-even (NOT ignoring taxes) and

(ii) Financial break-even quantity of sales.

Record the results below. Remember to properly "label" them.

GIVEN INFORMATION According to best estimates: Unit sales 45,000 Price per unit 140 Variable cost per unit 125 Fixed costs per year 186,000 Fixed Assets at the beginning 640,000 Changes in NWC 0 Project life (years) 2 Depreciation -years,method 2 Required return 12% Income tax rate 40%

Explanation / Answer

CONTRIBUTION PER UNIT = PRICE PER UNIT - VARIABLE COST PER UNIT

= 140-125

= $15 PER UNIT

FIXED COST = $186000

ACCOUNTING BREAK-EVEN = FIXED COST / CONTRIBUTION PER UNIT

   = 186000/15

   = 12400 UNITS

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