Question

Day Vision Inc. produces sunglasses. The company uses $1.84 in materials and $3.13 in labor to construct each pair. Over the course of one year, Day Vision incurs fixed costs of $620,000. Day Vision anticipates producing 341,000 units this year.

  

Requirement 1:

What is the variable cost per unit? (Do not round your intermediate calculations.)

(Click to select)  4.87  4.97  3.13  1.84  5.07

  

Requirement 2:

What are the anticipated total costs for the year? (Do not round your intermediate calculations.)

(Click to select)  2,199,032  1,694,770  2,430,509  2,214,770  2,314,770

  

Requirement 3:

(a)	If the selling price is $11.2 per unit, what is the Day Vision's break-even quantity on a cash basis? (Do not round your intermediate calculations.)
	(Click to select)  137,833 units  94,542 units  99,518 units  104,494 units  100,518 units

  

(b)	If depreciation is $238,700 per year, what is the accounting break-even quantity? (Do not round your intermediate calculations.)
	(Click to select)  130,941 units  144,725 units  137,833 units  132,833 units  99,518 units

Answer 1

Information Given:

Material Cost per unit =$1.84, Labour Cost per unit =$3.13, Fixed Cost =$620000, No. of Unit Produced =341000 Units

Requirement 1:

Variable Cost per unit = Material Cost per unit+Labour Cost per Unit =$1.84+$3.13 =$4.97 per unit

Requirement 2:

Anticipated Total Cost for the year =Variable Cost+Fixed Cost=[(341000units*$4.97)+$620000]=$2314770

Requirement 3:

(a)  Break Even Quantity on Cash Basis = Fixed Cost/ Contribution per unit =$620000/$6.23 =99518 Units

Contribution per unit = Selling Price per unit - Variable cost per unit =$11.2-$4.97 =$6.23 per unit

(b) Accounting Break Even Quantity = (Fixed Cost+Depreciation)/ Contribution per unit =($620000+$238700)/$6.23 = 137833Units

Note:Accounting Break Even means Break Even for income statement which includes non cash transaction such as depreciation also.