Cash/Finance Lecture

Widget Business

Problem 1: Break Even Analysis

Selling Price of Widget: $3.00

Cost of Goods Sold (Material) $1.00

Assume that there are only material costs associated with the Cost of Goods Sold (COGS) That is, there is no labor or other direct items associated with the manufacture of the product. For the purposes of this exercise I have classified direct labor in fixed costs.

Fixed Costs (Dir. Labor, Overhead, SG&A): $30,000/month

Machinery & Equipment: $240,000

(Assume machinery and equipment is on books at $240,000 as of Jan.1 with a 10 year useful life. For ease of calculation you can assume straight-line depreciation. You can assume it was an equity contribution made by the founder)

Question Set 1:

• Calculate monthly profit break even
• Calculate the monthly cash break even

Show work and use both the "total revenue - total cost" approach and break even using the "fixed cost/contribution margin" formula.

(PERFORM IN AN EXCEL FILE)