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Monday, November 11, 2019

Spencer Tools would like to offer a special product to its best customers. However, the firm wants to limit its maximum potential loss

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? 
 
A. 
1,220 units

B. 
1,680 units

C. 
2,215 units

D. 
2,560 units

E. 
2,750 units
Cash break-even point = $21,000/$12.50 = 1,680 units


81.
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? 
 
A. 
6,521 units

B. 
8,256 units

C. 
8,510 units

D. 
9,667 units

E. 
10,842 units
Qcash break-even = $71,000/($26.50 - $17.90) = 8,256


82.
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? 
 
A. 
$0

B. 
$12,500

C. 
$62,309

D. 
$74,816

E. 
$86,500
OCFfinancial break-even = (11,360 × $13.10) - $74,000 = $74,816

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