February sales for Ted's Variety Store equal $100,000, variable costs equal $60,000, fixed costs, including depreciation of $20,000, total $60,000.
A) Teds' Variety Store broke even with respect to net income.
B) Teds' Variety Store broke even with respect to cash.
C) Ted's Variety fell $20,000 short of cash break-even.
D) Teds' Variety Store broke even with a $20,000 surplus.

Question

Quizplus · Accepted Answer

Ted's Variety Store broke even with respect to cash because the depreciation is a non-cash expense. Therefore, the actual cash outflow for fixed costs is $40,000 ($60,000 - $20,000 depreciation), making total costs $100,000 ($60,000 variable + $40,000 fixed), which equals the sales revenue.

February Sales for Ted's Variety Store Equal $100,000, Variable Costs