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 above 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 amortisation expenses of $30,000 per month, while the alternative has cash expenses of $30,000 per month and depreciation and amortisation expenses of $5,000 per month. Under the low-capacity alternative, variable costs per unit are $60. If the company bases its decisions on the Accounting Operating Profit Break-even, then what is the variable cost per unit under the high-capacity alternative?
A) $10
B) $47
C) $60
D) $70

Question

Quizplus · Accepted Answer

The Accounting Operating Profit Break-even is the point at which the company's operating profit is zero. At this point, the company's total revenue is equal to its total costs.The total revenue is equal to the price of each calculator multiplied by the number of calculators sold. The total costs are equal to the cash expenses plus the depreciation and amortisation expenses.For the high-capacity machine, the total costs are equal to $100,000 + $30,000 = $130,000 per month. For the low-capacity machine, the total costs are equal to $30,000 + $5,000 = $35,000 per month.The company is indifferent between the two machines as long as sales are above 1,900 units per month. This means that the total revenue for both machines is the same at this point.Therefore, the price of each calculator multiplied by the number of calculators sold is the same for both machines.The price of each calculator is $70. Therefore, the number of calculators sold is the same for both machines.The variable costs per unit are equal to the total costs minus the fixed costs. The fixed costs are equal to the cash expenses plus the depreciation and amortisation expenses.For the high-capacity machine, the variable costs per unit are equal to $130,000 - $100,000 = $30,000 per month. For the low-capacity machine, the variable costs per unit are equal to $35,000 - $30,000 = $5,000 per month.The company is indifferent between the two machines as long as sales are above 1,900 units per month. This means that the variable costs per unit for both machines are the same at this point.Therefore, the variable costs per unit under the high-capacity alternative is $30,000 / 1,900 = $10.

Break-Even Analysis