Question

In: Finance

Lamps R Us makes lamps. The variable materials cost $8.85 per unit. The variable labor cost is $8.10 per unit.

what is variable cost per unit
suppose Lamps R Us has fixed costs of $800,000 during the year in which its total production is 150,000 units. What are the total costs for the year?
If the selling price is $39.99 per unit. Does Lamps R Us break even on a cash basis? If depreciation is $400,000 per year, what is the accounting break-even point?

(Use Excel and Excel Formulas)

Expert Solution

variable cost per unit=

Particulars	Amount per unit
Material cost (A)	8.85$
variable labor cost (B)	8.1$
variable cost per unit (A+B)	16.95$

Given fixed cost =800000$

Total production = 150000 units

Total costs= Fixed cost+ total variable cost

= 800000$ +(16.95$)*150000=3342500$

If the selling price=39.99 Per unit

Break even point is the level of the sales at which the company should overcome total cost

cash breakeven is arrived considering only fixed cost which involve cash outflow so fixed cost considered for cash breakeven= 800000-400000=400000$

so

Particulars	Amount
Sales (A)	5998500	39.99*150000
Variable cost(B)	2542500	16.95*150000
Contribution(A-B)=C	3456000
Fixed costs for cash breakeven D	400000
Excess cash available	3056000

Yes the firm will be able to break even on a cash basis at 39.99 per unit. infact it is generating profits i.e more inflows cashflows than the cash outflows

The cash breakeven point occurs at = Fixed cost for cash breakeven /Contribution per unit

contribution per unit= Sale price- variable cost= 39.99-16.95=23.04

=400000/23.04=17361.11 units

i.e if the comapny sells 17361.11 units it would be able to meet the cash breakeven.

Accounting breakeven= Fixed cost /Contribution per unit

the level of production at which the sales is equal to total cost

contribution per unit= Sale price- variable cost= 39.99-16.95=23.04

=8000000/(23.04)

=the firm breakeven point = 34722 units

jeff jeffy answered 2 years ago

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