Niece Equipment Rentals of Del Valle, Texas, has recently been approached about the prospect of purchasing a large construction crane. The crane rents for $470 an hour but operator, fuel, insurance and miscellaneous expenses run $204 an hour when the crane is in use. The company owner estimates that it will cost $970 a month to store and maintain the crane and the annual depreciation expense is $45,000.

a.Calculate the accounting break-even number of annual rental hours needed to produce zero operating earnings from the crane (before taxes).

b.Calculate the cash break-even point. If we ignore non-cash expenses such as depreciation in the break-even calculation, how many hours must the crane be rented in order to break even on a cash basis?

c.Why do we have two different break-even points? What does each one tell you?