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) 6,667 units
B) 7,333 units
C) 7,083 units
D) 3,542 units

Question

Quizplus · Accepted Answer

The cash break-even point is calculated by dividing the total fixed costs, excluding depreciation (since it's a non-cash expense), by the contribution margin per unit (price per unit - variable cost per unit). Here, the fixed costs excluding depreciation are $400,000 ($425,000 - $25,000), and the contribution margin per unit is $60 ($120 - $60). Thus, the cash break-even point is $400,000 / $60 = 6,667 units.

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