Question

Scorpio Inc. is a seafood company specializing in crayfish. Each pound of crayfish cost $25 to produce and can be sold for $100. The company has fixed overhead costs of $300,000 per year, and can claim depreciation of $50,000 per year. What is the cash break-even quantity of sales for Scorpio Inc.

Answer 1

Cost to produce : $25

Sale price: $100

Fixed overhead costs: $300,000 per year

Depreciation: $50,000 per year

Hence,

Cash break-even quantity: (Fixed Cost - Depreciation cost) / ( Sale price per unit - Variable cost per unit)

Cash break-even quantity: ($ 300,000 - $50,000) / ($100 - $25)

Cash break-even quantity: $ 250,000 / $75

Cash break-even quantity: $ 3333.33 or 3,334 Units

(Note: In cash break even point we deduct all non-cash expense like depreciation or amotization from the annual fixed costs)

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