4. break-even calculations Ralph is planning a visit to the bank to solicit a small business loan.

Ralph’s business plan, in summary form, is given by the following LLAs:

revenue TR = 240q manufacturing cost TMC = 125, 000 + 100q selling and administrative S&A = 85, 000 + 20q

(a) The bank, after studying Ralph’s numbers, asks what the breakeven point is. What is it, and why might the bank be interested in it?

(b) Ralph then points out that the business plan calls for production of q = 2, 500 units the first year. Under GAAP style income measurement, using full costing (with a normal volume of 2, 500 units), how many units must Ralph sell in the first year for accounting income to be zero?

(c) Explain the difference between your two break-even calculations.

(d) What would you, as the banker, say to Ralph’s comment in (b)
above?