Question

4) In 2019, ROA had fixed operating costs of $525,000, of which $125,000 is depreciation expense. Its per-unit sales price is $35 and its variable cost per unit is $22.50. Show ROA’s operating breakeven output (BEP) 1) (_____units; $______); 2) cash operating BEP (_____units; $______); and 3) the target-profit break-even output (_____units; $______) for a target profit of $25,000.

Answer 1

	Contribution margin per unit = Sales price per unit - Variable cost per unit = 35 - 22.50	12.50
1)	Operating breakeven output = Fixed operating cost / Contribution margin per unit = 525000 / 12.50	42000	Units
2)	Cash operating BEP = ( Operating fixed cost - Depreciation expense ) / Contribution margin per unit = ( 525000 - 125000 ) / 12.50	32000	Units
3)	Target profit breakeven output = ( Fixed operating costs + Target profit ) / Contribution margin per unit = ( 525000 + 25000 ) / 12.50	44000	Units

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