Question

Night Shades Inc. (NSI) manufactures biotech sunglasses. The variable materials cost is $1.7 per unit, and the variable labor cost is $3.06 per unit. a. What is the variable cost per unit? b. Suppose the company incurs fixed costs of $600,000 during a year in which total production is 300,000 units. What are the total costs for the year? c. If the selling price is $8.5 per unit, what is the NSI break-even on a cash basis? d. If depreciation is $210,000 per year, what is the accounting break-even point?

Answer 1

a. Variable cost per unit = Variable materials cost + Variable labor cost = $1.7 + $3.06 = $4.76 per unit

b. Total costs = Variable costs + Fixed costs

Total costs = (300,000 * $4.76) + $600,000

Total costs = $2,028,000

c. Cash break even = Fixed costs / (Selling price - Variable cost per unit)

Cash break even = $600,000 / ($8.5 - $4.76)

Cash break even = 160,427.81 units

d. Accounting breakeven = (Fixed costs + Depreciation) / (Selling price - Variable cost per unit)

Accounting breakeven = ($600,000 + $210,000) / ($8.5 - $4.76)

Accounting breakeven =216,577.54 units