Question:
BEP problem involving two new concepts: (1) depreciation, and (2) contribution margin. Depreciation should be deducted from fixed costs when determining the BEP, and the term "contribution margin" is defined as price-variable cost.
Calloway Cab Company determines its break-even strictly on the basis of cash expenditures related to fixed costs. Its total fixed costs are $400,000, but 20 percent of this value is represented by depreciation. Its contribution margin for each unit is $3.60. How many units does the firm need to sell to reach the break-even point?