Question

Calloway cab company determines its break-even strictly on the basis of cash expenditures related to fixed costs. its total fixed costs are $450,000, but 5 percent of this value is represented by depreciation. its contribution margin (price minus variable cost) for each unit is $4.10. how many units does the firm need to sell to reach the cash break-even point?

Answer 1

Cash related fixed costs = Total fixed costs - Depreciation

Substituting for the given values;
Cash related fixed costs = 450,000 - (5/100*450,000) = 450,000 - 22,500 = $427,500

Now;
Cash break-even point = Cash related fixed costs/Contribution margin

Therefore;
Cash break-even point = 427,500/4.10 = 104,268.29 ≈ 104,269 units