Cool Shades manufactures biotech sunglasses. The variable materials cost is $1.38 per unit, and the variable labor cost is $.92 per unit. Suppose the firm incurs fixed costs of $348,000 during a year in which total production is 136,000 units and the selling price is $19.50 per unit. What is the cash break-even point?
A) 16,453 units
B) 22,435 units
C) 20,233 units
D) 18,907 units
E) 14,768 units

Question

Quizplus · Accepted Answer

To calculate the cash break-even point, we need to find out how many units we need to sell to cover all of our costs (both variable and fixed) and make $0 in profit.

First, let's calculate the contribution margin per unit:

Selling price per unit - variable cost per unit = contribution margin per unit

$19.50 - $1.38 - $0.92 = $17.20

This means that for each unit sold, $17.20 is available to cover fixed costs and contribute to profit.

Next, we can calculate the total contribution margin:

Total contribution margin = contribution margin per unit * number of units sold

$17.20 * 136,000 = $2,339,200

Now we can calculate the cash break-even point using the following formula:

Cash break-even point = fixed costs / contribution margin per unit

$348,000 / $17.20 = 20,233 units

Therefore, the answer is (C) 20,233 units.

Cool Shades Manufactures Biotech Sunglasses