(Break-even analysis) Niece Equipment Rentals of Del Valle, Texas, has recently been approached about the...
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(Break-even analysis) Niece Equipment Rentals of Del Valle, Texas, has recently been approached about the prospect of purchasing a large construction crane. The crane rents for $480 an hour but operator, fuel, insurance and miscellaneous expenses run $206 an hour when the crane is in use. The company owner estimates that it will cost $960 a month to store and maintain the crane and the annual depreciation expense is $54,000. 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? a. The accounting break-even units of production is hours. (Round to the nearest whole number.)
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