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.
b.
c.
| 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 |
