Question

1. Calculating Costs and Break-Even [LO3] Night Shades, Inc. (NSI), manufactures biotech sunglasses. The variable materials cost is $11.13 per unit, and the variable labor cost is $7.29 per unit.

1. What is the variable cost per unit?

2. Suppose the company incurs fixed costs of $875,000 during a year in which total production is 190,000 units. What are the total costs for the year?

3. If the selling price is $44.99 per unit, does the company break even on a cash basis? If depreciation is $435,000 per year, what is the accounting break-even point?

Answer 1

(1)-Variable cost per unit

Variable cost per unit = Variable material cost + Variable labor cost

= $11.13 + $7.29

= $18.42 per unit

(2)-Total Costs for the year

Total Costs for the year = Total Variable cost + Fixed costs

= [190,000 units x $18.42 per unit] + $875,000

= $34,99,800 + $875,000

= $43,74,800

(3)- Cash Break-even Point and Accounting break-even point

Contribution per unit = Selling price – Variable cost

= $44.99 - $18.42

= $26.57 per unit

Cash Break-Even Point = Fixed Costs / Contribution per unit

= $875,000 / $26.57 per unit

= 32,931.88 Units

Accounting Break-Even Point = [Fixed Costs + Depreciation Expense] / Contribution per unit

= [$875,000 + 435,000] / $26.57 per unit

= $13,10,000 / $26.57 per unit

= 49,303.73 Units