The Interstate Hotel is considering building a car wash at the edge of their property. Fixed costs are estimated at $62,000 a year. The variable cost per unit is estimated at $1.75. The estimated price
Per car wash is $4.95. What is the cash break-even point of this project?
A) 9,254 units
B) 12,525 units
C) 19,375 units
D) 33,667 units
E) 35,429 units

Question

Quizplus · Accepted Answer

The cash break-even point is when the revenue earned from selling car washes equals the total costs incurred in producing and selling those car washes.

To calculate the cash break-even point, we can use the formula:

Total Costs = Fixed Costs + Variable Costs
Revenue = Price * Quantity

Let's solve for the quantity (or number of car washes) that will give us a revenue equal to our total costs:

Total Costs = Revenue
Fixed Costs + Variable Costs = Price * Quantity
$62,000 + ($1.75 * Quantity) = $4.95 * Quantity
$62,000 = $3.2 * Quantity
Quantity = 19,375

Therefore, the cash break-even point is 19,375 car washes. The best choice is C.

The Interstate Hotel Is Considering Building a Car Wash at the Edge