Question

Night Shades Inc. (NSI) manufactures biotech sunglasses. The variable materials cost is $1.58 per unit, and the variable labor cost is $3.16 per unit.

  

a. What is the variable cost per unit?

  

b. Suppose the company incurs fixed costs of $450,000 during a year in which total production is 225,000 units. What are the total costs for the year?

  

c. If the selling price is $9.75 per unit, what is the NSI break-even on a cash basis?

  

d. If depreciation is $146,250 per year, what is the accounting break-even point?

Answer 1

a. Variable cost per unit = Variable materials cost + Variable labor cost = $1.58 + $3.16 = $4.74 per unit

b. Total costs = Variable costs + Fixed costs

Total costs = (225,000 * $4.74) + $450,000

Total costs = $1,516,500

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

Cash break even = $450,000 / ($9.75 - $4.74)

Cash break even = 89,820.36 units

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

Accounting breakeven = ($450,000 + $146,250) / ($9.75 - $4.74)

Accounting breakeven = 119,011.98 units