Break-even analysis<?xml:namespace prefix = o ns = \"urn:schemas-microsoft-com:o

Question

Break-even analysis<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Given the following information:

             Acctng      price       Variable    Fixed        Depreciation

A             6,280 _______     $52          $97,000             $24,000

B             740         $1,010   ______   $495,000           $100,000

C             2,000     $21            $15        $4,900                 _______

D             2,000     $21              $5 ________                             $15,000

A.      Calculate the missing information for each of the above projects.

B.      Note that Projects C and D share the same accounting break-even. If sales are above the break-even point, which project would you prefer?  Explain Why.

C.      Calculate the cash break-even for each of the above projects. What do the differences in accounting and cash break-even tell you about the four projects?

Explanation / Answer

A)i) Contribution = Fixed cost + Depreciation= 97000+24000=121000

contribution per unit =121000/6280= 19.27

price = Variable + contribution=52+19.27=$ 71.27 per unit

ii) variable =1010-(495000+100000)/740= $ 205.95 per unit

iii)Depreciation =( 2000* (21-15))-4900=7100

iv) Fixed cost = (2000*(21-5))-15000= 17000

B)Project D as it has higher conribution per unit

C) cash break even doesnt take depreciation in to account

Break even in each case would be equal to the fixed cost only

Diffrence in break even for cash nad accounting tells that break even in case of cash breakeven can be achieved with lesser inits as compared to accounting break even

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