A project has the following estimated data: price = $89 per unit; variable costs
ID: 2778823 • Letter: A
Question
A project has the following estimated data: price = $89 per unit; variable costs = $33.82 per unit; fixed costs = $5,100; required return = 10 percent; initial investment = $11,000; life = seven years. Ignore the effect of taxes.
What is cash break-even quantity?
92
121
83
87
74
What is the financial break-even quantity?
160
146
120
106
133
What is the accounting break-even quanity?
145
92
115
121
133
What is the degree of operating leverage at the financial break-even level of output?
1.6595
3.2572
1.8759
1.2266
1.0101
Explanation / Answer
Price 89/unit Variable cost 33.82/unit Contibution margin/unit 55.18 Initial Fixed cost 11000 Fixed cost 5100 a) Accounting break even point = Fixed cost/ Contribution margin per unit 92.42479159 b) Cash break even point= (Fixed cost-non cash expenses)/ Contibution margin per unit As there is no clarity on how much is the non cash expense in the given fixed cost so full Fixed cost will be treated as cash expense Cash break even point= 92.42479159
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