Spencer Tools would like to offer a special product to its best customers. However, the firm wants to limit its maximum potential loss on this product to the firm's initial investment in the project. The fixed costs are estimated at $21,000, the depreciation expense is $11,000, and the contribution margin per unit is $12.50. What is the minimum number of units the firm should pre-sell to ensure its potential loss does not exceed the desired level?
Cash break-even point = $21,000/$12.50 = 1,680 units
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81.
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The Motor Works is considering an expansion project with estimated annual fixed costs of $71,000, depreciation of $38,500, variable costs per unit of $17.90 and an estimated sales price of $26.50 per unit. How many units must the firm sell to break-even on a cash basis?
Qcash break-even = $71,000/($26.50 - $17.90) = 8,256
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82.
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A proposed project has a contribution margin per unit of $13.10, fixed costs of $74,000, depreciation of $12,500, variable costs per unit of $22, and a financial break-even point of 11,360 units. What is the operating cash flow at this level of output?
OCFfinancial break-even = (11,360 × $13.10) - $74,000 = $74,816
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