The Motor Works is considering an expansion project with estimated fixed costs of $127,000, depreciation of $16,900, variable costs per unit of $41.08, and an estimated sales price of $79.90 per unit. How many units must the firm sell to break even on a cash basis?
A) 2,928 units
B) 3,272 units
C) 3,510 units
D) 4,206 units
E) 3,842 units

Question

Quizplus · Accepted Answer

To break even on a cash basis, The Motor Works must cover its fixed costs and depreciation. However, depreciation is a non-cash expense and does not need to be covered for a cash basis break-even analysis. Therefore, only the fixed costs of $127,000 need to be covered by the contribution margin, which is the sales price per unit minus the variable cost per unit ($79.90 - $41.08 = $38.82). The break-even point in units is the fixed costs divided by the contribution margin per unit, which is $127,000 / $38.82 ≈ 3,272 units.

The Motor Works Is Considering an Expansion Project with Estimated