July sales for Amherst Arcade equal $100,000, variable costs equal $60,000 and fixed costs, including depreciation of $20,000, total $60,000.Which of the following is correct?
A)Amherst Arcade broke even with respect to net income.
B)Amherst Arcade broke even with respect to cash.
C)Amherst Arcade fell $20,000 short of cash break-even.
D)Amherst Arcade broke even with a $20,000 surplus.

Question

Quizplus · Accepted Answer

Amherst Arcade's total costs (variable + fixed) are $120,000 ($60,000 + $60,000). However, depreciation is a non-cash expense, so when calculating cash break-even, it should be added back to the net income. The actual cash costs are $100,000 ($60,000 variable + $40,000 fixed excluding depreciation), matching the sales revenue, indicating a cash break-even situation.

July Sales for Amherst Arcade Equal $100,000, Variable Costs Equal