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