Question

 Niece Equipment Rentals of Del​ Valle, Texas, has recently been approached about the prospect of purchasing a large construction crane. The crane rents for $540 an hour but​ operator, fuel, insurance and miscellaneous expenses run $199 an hour when the crane is in use. The company owner estimates that it will cost

​$1,050 a month to store and maintain the crane and the annual depreciation expense is $48,000.

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?

Answer 1

Met Contribution from an operating hour & .. Crane rental Revenue per hour a Operating costs per hour = Operating profit hour $500 4.177. $34 1 perhous # Fixed costs per month to operate Storage and maintainance expenses of Crane - $ 1050 X 12 months... $ 12,600 Annual Depreciation Total experises Fixed cost $48.000 $ 60.600 ... @ Accounting breakeven Nog Annual rental hours to peroduce zero Operating profit z Hoxed costume $ 60600 Profer per hour $341 7 177.71 houss 177.71 hours need to rented out to earn. zero break even probit

(1) Coch break onun point: cash fired expenses ($1050x12) & 12600 Proper porr hour $341/ hour Cash breakeren pornt & Cash Rod expenses Profit per unit 12600 & 34) y 36.95 hours Moog hours must be rented in order to break even on a cash balds D & 36.95 hours. two Desterrent break even points: A Normal breakeven polut Conecders both cash expenses actually incurred and Non cash expenses such as Depreciation and proutsions debited to profit and Loss Account it will consider Book profit as per books A cash break even poont : This method Comider only expenses incurrend in Canh harcs, Mon Caush expenses such as Depreciation It will consider cash in flows recured as profil