Question

Night shades inc. (NSI) manufactures biotech sunglasses. The variable materials cost is $10.70 per unit, and the variable labor costs is $6.30 per unit.

A. What is the variable cost per unit?
B. Suppose NSI incurs fixed costs of $660,000 during a year in which total production is 280,000 units. What are the total costs for the year?
C. If the selling price is $44.50 per unit, what is the cash break-even point? If depreciation is $460,000 per year, what is the accounting break-even point?

Answer 1

Answer and Explanation:

A. The computation of variable cost per unit is shown below:-

Variable cost = Variable material cost + Variable labor cost

= $10.70 + $6.30

= $17

B. The computation of total costs for the year is shown below:-

Total cost = Variable cost + Fixed cost

= $280,000 × $17 + $660,000

= $5,420,000

C. The computation of cash break-even point and accounting break-even point is shown below:-

Contribution = Selling price - Variable cost

= $44.50 - $17

= $27.5

Cash break even point = Fixed cost ÷ Contribution per unit

= $660,000 ÷ $27.50

= 24,000 units

Break even point = (Fixed cost + Depreciation) ÷ Contribution per unit

= ($660,000 + $460,000) ÷ $27.5

= $1,120,000 ÷ $27.5

= 40,727.27 units

or

= 40,728 units