Break-Even Analysis

question 1

Multiple Choice

Break-even analysis. TimeKeepers is about to introduce a new LED clock and has determined that it will charge $30 per clock. The company must decide whether or not to purchase a high-capacity clock-making machine. If the high-capacity machine is selected, then the fixed costs for the company will be $5,000 per year, with variable costs of $5 per clock. Otherwise the fixed costs will be $1,000, with variable costs of $15 per clock. Above what level of expected sales should TimeKeepers choose the high fixed cost alternative?

• A) 400 units
• B) 500 units
• C) 4,000 units
• D) 5,000 units

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Definitions:

Parent Entities

Companies that own more than half of the voting rights of another company or have control over it, making the other company a subsidiary.

Goodwill

An intangible asset that represents the excess value of a company over the fair value of its identifiable assets and liabilities, often arising from acquisitions.

Impairment

A decrease in the recoverable value of an asset to below its carrying amount on the balance sheet, leading to a written down value.

Share Capital

The funds raised by a company through the issuance of shares to investors.