Night Shades Inc. (NSI) manufactures biotech sunglasses. The variable materials

Question

Night Shades Inc. (NSI) manufactures biotech sunglasses. The variable materials cost is $1.15 per unit, and the variable labor cost is $2.07 per unit.

Requirement 1: What is the variable cost per unit? (Do not round your intermediate calculations.)

Requirement 2: Suppose NSI incurs fixed costs of $670,000 during a year in which total production is 301,500 units. What are the total costs for the year? (Do not round your intermediate calculations.)

Requirement 3:

(a) If the selling price is $8.5 per unit, what is the NSI break-even on a cash flow basis (in units)? (The level of sales in units at which the cash flow is zero). (Do not round your intermediate calculations.)

(b) If depreciation is $135,675 per year, what is the accounting break-even point (in units)? (Do not round your intermediate calculations.)

Explanation / Answer

Requirement 1: What is the variable cost per unit?

The total variable cost per unit is the sum of the two variable costs, so:

Total variable costs per unit = $1.15 + 2.07

Total variable costs per unit =$3.22

Requirement 2: Suppose NSI incurs fixed costs of $670,000 during a year in which total production is 301,500 units. What are the total costs for the year? (Do not round your intermediate calculations.)

The total costs include all variable costs and fixed costs. We need to make sure we are including all variable costs for the number of units produced, so:

Total costs = Variable costs + Fixed costs

Total costs = $3.22*(301,500) + $670,000

Total costs = $1,640,830

Requirement 3:

(a) If the selling price is $8.5 per unit, what is the NSI break-even on a cash flow basis (in units)? (The level of sales in units at which the cash flow is zero). (Do not round your intermediate calculations.)

The cash breakeven, that is the point where cash flow is zero, is:

QC = $670,000 / ($8.65 - 3.22)

QC = 119,005 units

(b) If depreciation is $135,675 per year, what is the accounting break-even point (in units)? (Do not round your intermediate calculations.)

b)
The accounting breakeven is:

QA = ($670,000 + 135,675) / ($8.65 - 3.22)

QA = 148,375

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