Night Shades Inc. (NSI) manufactures biotech sunglasses. The variable materials cost is $18.50 per unit, and the variable labor cost is $7.00 per unit.

Night Shades Inc. (NSI) manufactures biotech sunglasses. The variable materials cost is $18.50 per unit, and the variable labor cost is $7.00 per unit.

a.	What is the variable cost per unit? (Round your answer to 2 decimal places. (e.g., 32.16))

Variable cost

$

  

b.	Suppose NSI incurs fixed costs of $800,000 during a year in which total production is 350,000 units. What are the total costs for the year?

  

Total cost

$

  

c.	If the selling price is $48.00 per unit, what is the cash break-even point? If depreciation is $600,000 per year, what is the accounting break-even point? (Round your answers to 2 decimal places. (e.g., 32.16))

Cash break-even point	units
Break-even point	units

Explanation:

a.

The total variable cost per unit is the sum of the two variable costs, so:

Total variable costs per unit = $18.50 + 7.00

Total variable costs per unit = $25.50

b.

The total costs include all variable costs and fixed costs. We need to make sure we are including all variable costs for the number of units produced, so:

Total costs = Variable costs + Fixed costs

Total costs = $25.50(350,000) + $800,000

Total costs = $9,725,000

c.

The cash break even, that is the point where cash flow is zero, is:

QC = $800,000 / ($48.00 – 25.50)

QC = 35,555.56 units

And the accounting breakeven is:

QA = ($800,000 + 600,000) / ($48.00 – 25.50)

QA = 62,222.22 units