The crane rents for 500 an hour but operator fuel insurance

Reference no: EM13622646

(Break-even analysis) Niece Equipment Rentals of Del Valle, TX has recently been approached about the prospect of purchasing a large construction crane. The crane rents for $500 an hour but operator, fuel, insurance and miscellaneous expenses run $200 an hour when the crane is in use. The company owner estimates that it will cost $1,000 a month to store and maintain the crane and the annual depreciation expense is $50,000.

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?

Reference no: EM13622646

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