Break-even analysis. Max's Brakes is introducing a new revolutionary brake-pad for vehicles that will never wear out. Max's will sell the pads for $100 a pair, and they will cost $80 in variable costs to produce. If cash fixed expenses are $1,500 per year and the depreciation and amortization expenses are $600 per year, then what is the Accounting Operating Profit Break-Even point for Max's?

Question

Quizplus · Accepted Answer

The break-even point is calculated by dividing the total fixed costs by the contribution margin per unit. The contribution margin per unit is the selling price minus the variable cost per unit, which is $100 - $80 = $20. The total fixed costs are $1,500 (cash fixed expenses) + $600 (depreciation and amortization) = $2,100. Therefore, the break-even point is $2,100 / $20 = 105 pairs.

Break-Even Analysis