Break-Even Analysis

question 28

Multiple Choice

Break-even analysis. ClockWatchers is about to introduce a new employee monitoring tool and has determined that it will charge $100 per unit. The company must decide whether or not to purchase a high-capacity manufacturing machine. If the high-capacity machine is selected, then the cash fixed costs will be $5,000 per year, with variable costs of $50 per unit and depreciation and amortisation expenses of $2,000. Otherwise the fixed costs will be $2,000, with variable costs of $75 per unit and depreciation and amortisation expenses of $500. If EBIT Break-even is how the company evaluates its projects, then above what level of expected sales should ClockWatchers choose the high fixed cost alternative?

• A) 60 units
• B) 90 units
• C) 120 units
• D) 180 units

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Definitions:

Market Failure

A situation in which the allocation of goods and services is not efficient, often leading to a net social welfare loss.

Suburbs

Residential areas located on the outskirts of cities, typically characterized by lower population density, individual housing, and a reliance on commuting.

Collective Farms

A form of agricultural production in which multiple farmers run their holdings as a joint enterprise.

Private Ownership

The holding of assets by non-governmental entities or individuals, allowing control and earning potential from those assets.