Break-Even Analysis

question 47

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 firm 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 firm 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 to maximize pretax operating cash flow?

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

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Definitions:

Jobs

In accounting and manufacturing, specific units or batches of work that can be individually costed and tracked.

Administrative Expenses

Costs related to the general operation of a business, which are not directly tied to production or sales, such as salaries of administrative personnel and office supplies.

Patient-Visits

The number of individual patient encounters with healthcare providers, often used as a measure in medical and dental practices.

Spending Variance

The difference between the budgeted or standard cost of an activity and its actual cost.