Consider the following cases: Case Unit Price Unit Variable Cost Fixed Costs Dep

Question

Consider the following cases:

Case Unit Price Unit Variable Cost Fixed Costs Depreciation

1 $ 7,000 $ 4,830 $ 12,000,000 $ 4,440,000

2 41 30.75 12,000 18,000

3 9 3.56 1,700 1,020

Ignore any tax effects in calculating the cash break-even.

Requirement 1: (a) Calculate the cash break-even point of Case 1

Calculate the accounting break-even point of Case 1.

Calculate the cash break-even point of Case 2

Calculate the accounting break-even point of Case 2

Calculate the cash break-even point of Case 3.

(b)

Calculate the accounting break-even point of Case 1.

Requirement 2: (a)

Calculate the cash break-even point of Case 2

(b)

Calculate the accounting break-even point of Case 2

Requirement 3: (a)

Calculate the cash break-even point of Case 3.

(b) Calculate the accounting break-even point of Case 3.

Explanation / Answer

Break-even point

Accounting breakeven is calculated by using following formula:

BEP in units = Fixed costs/ (Selling price per unit- variable costs per unit)

Cash break-even point is calculated by using following formula:

Cash BEP= (Fixed costs- Non-cash expenses) / (Selling price per unit - variable cost per unit)

Requirement 1

Accounting break even for case 1 is calculated below:

BEP in units = Fixed costs/ (Selling price per unit- variable costs per unit)

                     = $12,000,000 / ($7,000 - $4,830)

                     = 5,530

Hence accounting break even for case 1 is 5,530 units

Cash break even for case 1 is calculated below:

Cash BEP = (Fixed costs- Non-cash expenses) / (Selling price per unit - variable cost per unit)

                  = ($12,000,000 - $4,440,000) / ($7,000 - $4,830)

                  = 3,484 unit

Hence cash break even for case 1 is 3,484 units

Requirement 1

Accounting break even for case 2 is calculated below:

BEP in units = Fixed costs/ (Selling price per unit- variable costs per unit)

                     = $12,000 / ($41 - $30.75)

                     = 1,298

Hence accounting break even for case 2 is 1,298 units

Cash break even for case 2 is calculated below:

Cash BEP = (Fixed costs- Non-cash expenses) / (Selling price per unit - variable cost per unit)

                  = $12,000 – $1,800 / ($41 - $30.75)

                  = 1,103

Hence cash break even for case 2 is 1,103 units

Requirement 1

Accounting break even for case 3 is calculated below:

BEP in units = Fixed costs/ (Selling price per unit- variable costs per unit)

                     = $1,700 / ($9 - $3.56)

                     = 313

Hence accounting break even for case 3 is 313 units

Cash break even for case 3 is calculated below:

Cash BEP = (Fixed costs- Non-cash expenses) / (Selling price per unit - variable cost per unit)

                 = ($1,700 – 1,020) / ($9 - $3.56)

                 = 125

Hence cash break even for case 3 is 125 units

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.