Break-even analysis. Poisson Calculators has found that it is indifferent between purchasing a high-capacity vacuum component assembly machine or a lower capacity machine as long as sales are 1,900 units per month. The price of each calculator is $70. The high-capacity machine has cash expenses of $100,000 per month and depreciation and amortization expenses of $30,000 per month, while the alternative has cash expenses of $30,000 per month and depreciation and amortization expenses of $5,000 per month. Under the low-capacity alternative, variable costs per unit are $60. If the firm bases its decisions on the Accounting Operating Profit Break-even, then what is the variable cost per unit under the high-capacity alternative?

Question

Quizplus · Accepted Answer

The variable cost per unit under the high-capacity alternative is $10. This is because the total cost per unit under the high-capacity alternative is $140 ($100,000 cash expenses + $30,000 depreciation and amortization expenses + $10 variable cost per unit) and the total cost per unit under the low-capacity alternative is $95 ($30,000 cash expenses + $5,000 depreciation and amortization expenses + $60 variable cost per unit). Since the firm is indifferent between the two machines at sales of 1,900 units per month, the total cost per unit under both machines must be the same. Therefore, the variable cost per unit under the high-capacity alternative must be $10.

Break-Even Analysis