Can someone calculate the break even analysis, possible answers given, thanks Br
ID: 2623964 • Letter: C
Question
Can someone calculate the break even analysis, possible answers given, thanks
Break-even analysis. ClockWatchers is about to introduce a new employee monitoring tool and has determined that it will charge $100 per unit. The firm must decide whether or not to purchase a high-capacity manufacturing machine. If the high-capacity machine is selected, then the cash fixed costs will be $5,000 per year, with variable costs of $50 per unit and depreciation and amortization expenses of $2,000. Otherwise the fixed costs will be $2,000, with variable costs of $75 per unit and depreciation and amortization expenses of $500. If EBIT Break-even is how the firm evaluates its projects, then above what level of expected sales should ClockWatchers choose the high fixed cost alternative?
120 units.
90 units.
60 units.
180 units.
120 units.
Explanation / Answer
Break even qty = (Fixed costs + Depreciation & Amortization) / ( price per unit - variable cost per unit)
Fixed costs = $5000 ; Depreciation = $2000
Variable cost = $50 per unit
price = $100 per unit
Break even qty = (5000 + 2000) / (100 - 50) = 140 units
Since the break even is realized at 140 units , this alternative should be chosen if sales are expected to be above this value
So ans is 180