Break-Even Analysis

question 36

Multiple Choice

Break-even analysis. Binders-For-School, Inc., is in the process of determining whether to purchase a high-capacity machine to make textbooks for the upcoming school year. The high-capacity machine will generate fixed costs of $10,000 per year versus the $2,000 fixed costs of using a low-capacity machine. The variable costs per unit when using the high-capacity machine will be $30. The firm will charge $60 for each textbook and has determined that the high-capacity machine will maximize pretax operating cash flow if sales are greater than 800 books. What is the variable cost per unit under the low-capacity machine scenario?

• A) $20
• B) $40
• C) $60
• D) $80

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Definitions:

Property Tax

A levy on property that the owner is required to pay, usually levied by local governments based on the property's assessed value.

Prepaid Property Tax

An expense that has been paid in advance for property taxes, classified as a current asset on the balance sheet until the period the tax covers has passed.

Financial Statements

Reports that summarize the financial performance, position, and cash flows of a business, including the balance sheet, income statement, and cash flow statement.

Property Tax Liability

The financial obligation a property owner has to pay taxes based on the value of their property to local government authorities.