8BP Air Purifier Inc. computes its b... [FREE SOLUTION]

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Foundations Of Financial Management

Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen

Business Studies

16th Edition 路 768 pages

ISBN: 9781259277160

Chapter 2: 8BP (page 146)

Air Purifier Inc. computes its break-even point strictly on the basis of cash expenditures related to fixed costs. Its total fixed costs are $2,450,000, but 15 percent of this value is represented by depreciation. Its contribution margin (price minus variable cost) for each unit is $40. How many units does the firm need to sell to reach the cash break-even point?

Short Answer

Expert verified

The cash break even point of the company is 52,062.50 units.

Step by step solution

Depreciation

$\begin{array}{rcl} Depreciation & = & 15 % of fixed cost \\ = & $ 2, 450, 000 脳 15 % \\ = & $ 367, 500 \end{array}$

Cash break even point

$\begin{array}{rcl} Cash break even point & = & \frac{Fixed cost - Depreciation}{(Revenue per unit - Variable cost per unit)} \\ = & \frac{$ 2, 450, 000 - $ 367, 500}{$ 40} \\ = & 52, 062.50 units \end{array}$

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Sales	1,360,000
Shares outstanding	104,000
Cost of goods sold	700,000
Interest expenses	34,000
Selling and administration expenses	49,000
Depreciation expenses	23,000
Preferred stock dividend	86,000
Taxes	100,000

Accumulated depreciation	\(309,000
Retained earnings	187,000
Cash	14,000
Bonds payable	136,000
Accounts receivable	54,000
Plant and equipment 鈥� original cost	775,000
Accounts payable	35,000
Allowance for bad debts	9,000
Common stock, \)1 par, 100,000 share outstanding	100,000
Inventory	70,000
Preferred stock, $59 par, 1,000 share outstanding	59,000
Marketable securities	24,000
Investments	20,000
Notes payable	34,000
Capital paid in excess of par (common stock)	88,000

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Short Answer

Step by step solution

Depreciation

Cash break even point

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