1 Akzhol

Night Shades, Inc., manufactures

biotech sunglasses. The variable
materials cost is $12.14 per unit, and
the variable labor cost is $6.89 per
unit.

a. What is the variable cost per unit?

b. Suppose the company incurs fixed costs of $845,000 during a year in which total production is 210,000 units. W
c. If the selling price is $49.99 per unit, does the company break even on a cash basis? If depreciation is $450,000
a. TVC ₸19.03 per unit
b. TC ₸4,841,300.00
c.
cash break-even FC/P-v when CF=0
Q ₸27,293.28 units
accounting break-even FC+D/P-v
₸41,828.17 units

2 Dilnaz
Ojo Outerwear Corporation can
manufacture mountain climbing shoes
for $45.17 per pair in variable raw
material costs and $29.73 per pair in
variable labor expense. The shoes sell
for $210 per pair. Last year,
production was 155,000 pairs. Fixed
costs were $2.15 million. What were
total production costs? What is the
marginal cost per pair? What is the
average cost? If the company is
considering a one-time order for an
extra 5,000 pairs, what is the
minimum acceptable total revenue
from the order? Explain.

TVC ₸11,609,500.00
TC ₸13,759,500.00
Marginal cost ₸74.90 per unit
Average cost ₸88.77
Min acceptable total revenue ₸374,500.00
Additional units should be produced only if the cost of producing those units can be recovered.

3 Kymbat
Stinnett Transmissions, Inc., has the
following estimates for its new gear
assembly project: Price = $1,220 per
unit; variable costs = $380 per unit;
fixed costs = $3.75 million; quantity =
90,000 units. Suppose the company
believes all of its estimates are
accurate only to within ±15 percent.
What values should the company use
for the four variables given here when
it performs its best- case scenario
analysis? What about the worst-case
scenario?

Scenario Unit sales Unit price Unit VC

Base 90,000.00 1,220.00 380.00
Best 103,500.00 1,403.00 323.00
Worst 76,500.00 1,037.00 437.00

4 Daulet
We are evaluating a project that costs
$845,000, has an eight-year life, and
has no salvage value. Assume that
depreciation is straight-line to zero
over the life of the project. Sales are
projected at 51,000 units per year.
Price per unit is $53, variable cost per
unit is $27, and fixed costs are
$950,000 per year. The tax rate is 22
percent, and we require a return of 10
percent on this project.

a. Calculate the accounting break-even point. What is the degree of operating leverage at the accounting break-e
b. Calculate the base-case cash flow and NPV. What is the sensitivity of NPV to changes in the quantity sold? Exp
c. What is the sensitivity of OCF to changes in the variable cost figure? Explain what your answer tells you about
a. accounting break-even FC+D/P-v
depreciation ₸105,625.00
40,600.96
DOL 1+FC/OCF
₸9.99
b. CF and NPV
OCF (Sales - Costs) x (1-T) + Depreciation x T
((P-v)xQ - FC) x (1-T) + Depreciation x T
OCF ₸316,517.50
NPV ₸843,597.50
sensitivity of NPV
new quantity ₸50,500.00
new OCF ₸306,377.50
new NPV ₸789,501.35
change in NPV (∆NPV / ∆Q) ₸108.19 the change in NPV for every unit change in sales
sales drop by 500 units ₸54,096.15 If sales were to drop by 500 units, then NPV would drop

c. sensitivity of OCF
new OCF ₸356,297.50
change in OCF (∆OCF / ∆VC) (₸39,780.00) If variable costs decrease by $1 then OCF would increase

5 Aidana
In the previous problem, suppose the
projections given for price, quantity,
variable costs, and fixed costs are all
accurate to within ±10 percent.
Calculate the best-case and worst-
case NPV figures.

6 Renat
In each of the following cases,
calculate the accounting break-even
and the cash break-even points.
Ignore any tax effects in calculating
the cash break-even.

Unit price Unit VC FC Depreciation

2,980 1,640 7,200,000 2,900,000
44 39 275,000 183,000
8 3 5,800 1,100

7 Akzhol
In each of the following cases, find the unknown variable:
Accounting Break-even Unit Price Unit VC FC
143,286 39 30 820,000
104,300 58.59 27 2,320,000
24,640 92 77.16 237,000

Homework
8
A project has the following estimated
data: Price = $53 per unit; variable
costs = $22 per unit; fixed costs =
$31,460; required return = 12
percent; initial investment = $46,200;
life = four years. Ignoring the effect of
taxes, what is the accounting break-
even quantity? The cash break-even
quantity? The financial break-even
quantity? What is the degree of
operating leverage at the financial
break-even level of output?

Price per unit 53

VC 22
FC 31460
RR 12.00%
Init Investment 46200
life time 4
Cash Break-even quantity (OCF=0) 1014.838709677
Financial break-even 1505.51219621
Accounting Break-even (OCF=Depr) 1387.419354839
depreciation 11550
NPV $46,200.75
Annuity PV factor 3,0373
Investment=OCF*Annuity PV factor
OCF 15210.87808251
otal production is 210,000 units. What are the total costs for the year?
basis? If depreciation is $450,000 per year, what is the accounting break-even point?

n be recovered.
 FC
3,750,000.00
3,187,500.00 because it's best-case scenario
4,312,500.00 because it's worst-case scenario

everage at the accounting break-even point?

changes in the quantity sold? Explain what your answer tells you about a 500-unit decrease in the quantity sold.
what your answer tells you about a $1 decrease in estimated variable costs.

use tax-shield formula

every unit change in sales
y 500 units, then NPV would drop by 54 096,15

ase by $1 then OCF would increase by $39,780.

QA QC
7,537.31 5,373.13
91,600.00 55,000.00
1,380.00 1,160.00

Depreciation
469,574
975,000
128,700
he quantity sold.