Question
A company has the following costs: Employee salaries 17,000 Rent 11,000 Insurance 2,000 Depreciation on equipment 6,000 Variable costs: Labour 24,000 Materials 16,000 Direct Expenses
A company has the following costs: Employee salaries 17,000 Rent 11,000 Insurance 2,000 Depreciation on equipment 6,000 Variable costs: Labour 24,000 Materials 16,000 Direct Expenses 2,000 Overheads 2,000 Additional information: (i) The selling price per unit is Shs. 10. The above variable costs relate to activity level of Shs. 60,000 sales. (i1) All other costs except those indicated as variable are fixed. Required: a) Calculate the break-even point in units and sales. (3 Marks) b) Calculate the cash flow break-even point in units and sales. (2 Marks) c) What is the importance of depreciation tax shield in break-even analysis? (3 Marks) d) Assuming tax rate of 48%, what is the Cash flow break-even point in units and sales. (4 Marks) e) Comment on your observation. (3 Marks)
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