Asked by Shawn Killens on May 08, 2024
Verified
What is the cash break-even point? Price = $100 per unit; variable cost = $24 per unit, fixed cost = $40,000 per year; depreciation = $10,000 per year. Assume a discount rate of 10%, project initial outlay of $100,000, project life of 10 years, and ignore taxes.
A) 527 units
B) 624 units
C) 658 units
D) 741 units
E) 1,130 units
Cash Break-even Point
The point at which a business generates enough cash flow to cover its operating expenses, without generating a profit or loss.
Variable Cost
Expenditures that fluctuate according to the degree of production or the volume of goods produced.
Fixed Cost
Costs that remain constant regardless of any change in a firm's activity level, such as lease payments or insurance premiums.
- Identify a variety of breakeven points, particularly those pertaining to cash, financial, and accounting.
Verified Answer
SD
Siobhan DawidiMay 09, 2024
Final Answer :
A
Explanation :
The cash break-even point is calculated by dividing the total fixed costs (excluding non-cash expenses like depreciation) by the price per unit minus variable cost per unit. Here, fixed costs are $40,000 (depreciation is not included since it's a non-cash expense), price per unit is $100, and variable cost per unit is $24. So, the calculation is $40,000 / ($100 - $24) = $40,000 / $76 = 526.3158, which rounds to 527 units.
Learning Objectives
- Identify a variety of breakeven points, particularly those pertaining to cash, financial, and accounting.