Question

Night Shades Inc. (NSI) manufactures biotech sunglasses. The variable materials cost is $1.55 per unit, and the variable labor cost is $3.1 per unit.

  

a. What is the variable cost per unit?

  

b. Suppose the company incurs fixed costs of $750,000 during a year in which total production is 375,000 units. What are the total costs for the year?

  

c. If the selling price is $9.5 per unit, what is the NSI break-even on a cash basis?

  

d. If depreciation is $281,250 per year, what is the accounting break-even point?

Answer 1

a. Variable cost per unit = Variable materials cost + Variable labor cost = $1.55 + $3.1 = $4.65 per unit

b. Total costs = Variable costs + Fixed costs

Total costs = (375,000 * $4.65) + $750,000

Total costs = $2,493,750

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

Cash break even = $750,000 / ($9.5 - $4.65)

Cash break even = 154,639.18 units

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

Accounting breakeven = ($750,000 + $281,250) / ($9.5 - $4.65)

Accounting breakeven = 212,628.87 units