Problem 11-1 Calculating Costs and Break-Even [LO3] Night Shades Inc. (NSI) manu

Question

Problem 11-1 Calculating Costs and Break-Even [LO3]

Night Shades Inc. (NSI) manufactures biotech sunglasses. The variable materials cost is $12.40 per unit, and the variable labor cost is $6.80 per unit.

a.

What is the variable cost per unit? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)

  Variable cost $   

b.

Suppose NSI incurs fixed costs of $760,000 during a year in which total production is 330,000 units. What are the total costs for the year? (Do not round intermediate calculations. Round your answer to the nearest whole number, e.g., 32.)

  Total cost $   

c.

If the selling price is $47.00 per unit, what is the cash break-even point? If depreciation is $560,000 per year, what is the accounting break-even point? (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16.)

  Cash break-even point units
  Accounting break-even point units  

Explanation / Answer

a)

Variable costs per unit:

= $12.40+$6.80

= $19.20

b)

Total costs:

= 330,000×$19.20+$760,000

= $7,096,000

c)

Cash break-even point:

= Cash fixed costs÷Contribution per unit

= $760,000÷($47-$19.20)

= 27,338.13 units

Accounting break-even point:

= Total fixed costs÷Contribution per unit

= ($760,000+$560,000)÷($47-$19.20)

= 47,482.01 units

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