Please take a look at the question below and the associated answer:
Question:
A company has $450,000 per year of fixed production costs, of which $150,000 are non-cash outlays. The variable cost per unit is $15, and the unit selling price is $25. The breakeven volume in sales units for this company would be
18,000 units.
60,000 units.
45,000 units.
30,000 units.
Answer: 45,000 units.
The breakeven volume is calculated as follows:
Breakeven volume = Fixed costs ÷ (Price – Unit variable costs)
450,000 ÷ ($25 – $15)
450,000 ÷ ($10) = 45,000 units
My question:
Wouldn't the $150,000 non cash outlay be subtracted from the Fixed Costs thereby making the answer = 30,000 units?
It was my understanding that the non-cash outlay items (depreciation, amortization, etc.) would be subtracted from the fixed costs (numerator) when determining the break even point.
Please let me know your thoughts.