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ch 11 solution

# ch 11 solution - 1 a The total variable cost per unit is...

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1. a. The total variable cost per unit is the sum of the two variable costs, so: Total variable costs per unit = \$4.68 + 2.27 Total variable costs per unit = \$6.95 b. The total costs include all variable costs and fixed costs. We need to make sure we are including all variable costs for the number of units produced, so: Total costs = Variable costs + Fixed costs Total costs = \$6.95(320,000) + \$650,000 Total costs = \$2,874,000 c. The cash breakeven, that is the point where cash flow is zero, is: Q C = \$650,000 / (\$11.99 6.95) Q C = 128,968 units And the accounting breakeven is: Q A = (\$650,000 + 190,000) / (\$11.99 6.95) Q A = 166,667 units 3. The base-case, best-case, and worst-case values are shown below. Remember that in the best-case, sales and price increase, while costs decrease. In the worst-case, sales and price decrease, and costs increase. Unit Scenario Unit Sales Unit Price Variable Cost Fixed Costs Base 110,000 \$1,600.00 \$180.00 \$5,500,000 Best 126,500 \$1,840.00 \$153.00 \$4,675,000 Worst 93,500 \$1,360.00 \$207.00 \$6,325,000 9. The accounting breakeven for the project is: Q A = [\$8,000 + (\$12,000/4)]/(\$68 41) Q A = 407 And the cash breakeven is: Q C = \$8,000/(\$68 41) Q C = 296 At the financial breakeven, the project will have a zero NPV. Since this is true, the initial cost of the

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ch 11 solution - 1 a The total variable cost per unit is...

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