Question

Air Purifier, Inc., computes its break-even point strictly on the basis of cash expenditures related to fixed costs. Its total fixed costs are $2,400,000, but 15 percent of this value is represented by depreciation. Its contribution margin (price minus variable cost) for each unit is $30. How many units does the firm need to sell to reach the cash break-even point

Answer 1

Air Purifier, Inc. must sell 68,000 units to reach the cash break-even point, after considering that 15 percent of its fixed costs are non-cash depreciation.

Step-by-step explanation:

To calculate how many units Air Purifier, Inc. needs to sell to reach the cash break-even point, we first need to determine the cash fixed costs. Since 15 percent of the total fixed costs are depreciation, which is a non-cash expense, we subtract this from the total fixed costs. The cash fixed costs are therefore 85 percent of $2,400,000, which is $2,040,000.

The contribution margin per unit is given as $30. To find the break-even point in units, we divide the cash fixed costs by the contribution margin per unit:

Break-even point in units = Cash Fixed Costs / Contribution Margin per Unit

Break-even point in units = $2,040,000 / $30

Break-even point in units = 68,000 units

Therefore, Air Purifier, Inc. must sell 68,000 units to cover its cash fixed costs and reach break-even.

Answer 2

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Explanation:because