Loretta & Niece's fixed costs are $425,000, including $25,000 of depreciation expense. The price of each unit sold is $120, and the variable cost per unit is $60. How many units must the firm sell to reach the cash break-even point?
A)Less than 7,333 units
B)7,333 units
C)More than 7,333 units
D)Not enough information has been provided to determine the cash break-even point.

Question

Quizplus · Accepted Answer

The cash break-even point is calculated by excluding non-cash expenses like depreciation. The fixed costs excluding depreciation are $400,000 ($425,000 - $25,000). The contribution margin per unit is $60 ($120 - $60). Therefore, the cash break-even point is $400,000 / $60 = 6,667 units, which is less than 7,333 units.

Loretta & Niece's Fixed Costs Are $425,000, Including $25,000 of Depreciation