Question

Wales Inc manufactures biotech gloves. The variable materials costs $10.50 per unit, and the variable labor costs is $9.49 per unit.

a.) What is the variable costs per unit

b.) Suppose Wales incurs fixed costs of $888,500 during the year in which total production is $222,500. What are the total costs for the year?

c.) If the selling price is $50 per unit, does Wales Inc. break even on cash a cash basis? If depreciation is $368,000 per year, what is the accounting break-even point?

Answer 1

a)
Variable cost per unit = variable materials costs per unit + variable labor costs per unit
= $10.50 + $9.49
= $19.99 per unit

b)
Total costs = Fixed cost + (Unit of production * variable cost per unit)
= $888,500 + (222,500 * $19.99)
= $888,500 + $4,447,775
= $5,336,275.

c)
Cash break even = Fixed cost / (selling price - variable cost)
= $888,500 / ($50 - $19.99)
= $888,500 / $30.01
= 29,606.80

Accounting Break Even Point = (Fixed Cost + Depreciation) / (selling price - variable cost)
= ($888500 + $368,000) / ($50 - $19.99)
= $1,256,500 / $30.01
= 41,869.38