A firm has fixed operating costs of $525,000, of which $125,000 is depreciation expense. The firm's sales price per unit is $35 and its variable cost per unit is $22.50. The firm's cash operatingbreak-even point in units is ____________.
A) 23,330
B) 42,000
C) 32,000
D) 52,000

Question

Quizplus · Accepted Answer

The formula for calculating cash operating break-even point in units is:

Cash Operating Break-Even Point = (Fixed Costs - Depreciation) / Contribution Margin per Unit

First, we need to calculate the contribution margin per unit:

Contribution Margin per Unit = Sales Price per Unit - Variable Cost per Unit
Contribution Margin per Unit = $35 - $22.50
Contribution Margin per Unit = $12.50

Next, we can use the formula above to calculate the cash operating break-even point in units:

Cash Operating Break-Even Point = ($525,000 - $125,000) / $12.50
Cash Operating Break-Even Point = $400,000 / $12.50
Cash Operating Break-Even Point = 32,000 units

Therefore, the best choice is C.

A Firm Has Fixed Operating Costs of $525,000, of Which