Question

In each of the following cases, calculate the accounting break-even and the cash break-even points. Ignore any tax effects in calculating the cash break-even. (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16.)Case Unit Price Unit Variable Cost Fixed Costs Depreciation1 $2,800 $2,295 $7,000,000 $1,250,000 2 51 43 65,000 160,000 3 12 4 1,800 700 Case Accounting break-even Cash break-even1 2 3

Answer 1

Answer:

FIRST CASE;

Accounting Break even = $13,094

Cash break even = $10,394

SECOND CASE;

Accounting Break even = $6,870

Cash break even = $1,387

THIRD CASE;

Accounting Break even = $189

Cash break even = $15

Explanation;

#Accounting break even point refers to the level of sales whereby a business generates exactly zero profits, i.e volume of sales or revenue exactly equals total expenses.

It can be calculated using below formula;

Accounting Break even = (Fixed cost per unit + depreciation) ÷ (unit price per unit - variable cost per unit)

#The cash break-even point provide a minimum amount of revenue of a firm generated from sales that are needed to provide positive cash flow.

It can be calculated using the below formula;

Cash break even = Fixed cost ÷ (selling price per unit - variable cost per unit )

FIRST CASE:

Accounting Break Even = ( 1,850,000 + $7,120,000) ÷ (3,340 - 2655) = 13,094unit

Cash Break Even = ($7,120,000) ÷ (3,340 - 2655)

= 10,394

SECOND CASE;

Accounting Break even = ($86,000 + $340,000) ÷ (141 - 79)= 6870

Cash break even = ($86,000) ÷ (62)= 1,387

THIRD CASE;

Accounting Break even = ($3,600 + 760) ÷ (30 - 7)= 189

Cash break even = ($3,600) ÷ (30 - 7) = 156