Wednesday 9 July 2014

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. (Round your answers to 2 decimal places. (e.g., 32.16))

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. (Round your answers to 2 decimal places. (e.g., 32.16))
 
 Case Unit Price Unit Variable Cost Fixed Costs Depreciation
1 $ 3,370 $ 2,675 $ 8,120,000 $ 3,060,000
2 146 81 78,000 350,000
3 31 7 3,700 860



Case Accounting break-even Cash break-even
1    
2    
3    



Explanation:
The cash break-even equation is:
QC = FC/(P – v)
And the accounting break-even equation is:
QA = (FC + D)/(P – v)
 
Using these equations, we find the following cash and accounting break-even points:
 
a. QC = $8,120,000/($3,370 – 2,675) QA = ($8,120,000 + 3,060,000)/($3,370 – 2,675)
QC = 11,683.45 QA = 16,086.33
 
b. QC = $78,000/($146 – 81) QA = ($78,000 + 350,000)/($146 – 81)
QC = 1,200.00 QA = 6,584.62

c. QC = $3,700/($31 – 7) QA = ($3,700 + 860)/($31 – 7)
QC = 154.17 QA = 190.00

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