Project Accounting Break-even Point (in units) Price per unit Variable Cost per unit Fixed Costs Depreciation
A 6,240 $53 $103,000 $26,000
B 780 $1,020 $499,000 $102,000
C 1,960 $22 $14 $4,600
D 1,960 $22 $6 $12,000
Questions:
1. What is the price per unit of Project A? (round to the nearest cent)
2. Note that Projects C and D share the same accounting break-even. If sales are above the break- even point, which project would you prefer? Explain why.
3. Calculate the cash break even for the above projects. What do the differences in the accounting and cash break even tell you about the four projects?
Working capital measures of an organizations financial well being. A business figures this out by measuring the company’s current assets and current liabilities. A businesses working capital gives detail information to the company to gauge rather they can continue their business. It also measures the amount of cash flow needed to see if there is sufficient money to cover both debt and operational expenses. If a company’s liabilities are greater than the assets used to pay their debt they may have to borrow money to cover the debt. I would recommend using limited customer credit. Offering credit to customers creates risk. If you end up with more credit (monies owed) than assets to cover than you are digging yourself a whole much similar to borrowing money to get out of debt. Credit can be important to marketing needs, however financially extending credit in my opinion is risky.