Question

Dime a Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond can be sold for...

Dime a Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond can be sold for $100. The materials cost for a standard diamond is $40. The fixed costs incurred each year for factory upkeep and administrative expenses are $219,000. The machinery costs $1.5 million and is depreciated straight-line over 10 years to a salvage value of zero.

a. What is the accounting break-even level of sales in terms of number of diamonds sold? (Do not round intermediate calculations.)

b. What is the NPV break-even level of diamonds sold per year assuming a tax rate of 21%, a 10-year project life, and a discount rate of 14%? (Do not round intermediate calculations. Round your answer to the nearest whole number.)

a. Break-even sales diamonds per year
b. Break-even sales diamonds per year

Homework Answers

Answer #1

a.) Accounting break even volume = (Fixed costs + Depreciation) / (Selling price per unit - Variable cost per unit)

= (219000 + 150000) / (100-40)

= 6150 Units

b.) Cash outflows = $1,500,000

Tax rate = 21%

Discount Factor = 14%

Fixed asset life = 10 Years

For NPV , we have to calculate present value of cash inflows

At NPV, PV of Cash inflows = PV Cash Outflows

For calculating quantity,

Let Q= the number of diamonds sold.

Cash flow = [(1 − Tax rate) × (revenue − expenses)] + (Tax rate × depreciation)

= (0.79 × (100Q− 40Q − 219,000)] + (0.21 × 150,000)

= 47.4Q − 173010 + 31500

= 47.4Q - 141510

14%, 10-year annuity factor = 5.2161

Therefore, for NPV to equal zero:

(47.4Q - 141510 ) × 5.2161 = $1,500,000

247.24Q = $2,238,130

Q= 9,053 diamonds per year i.e. NPV breakeven sales quantity

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Dime a Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond can be sold for...
Dime a Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond can be sold for $100. The materials cost for a standard diamond is $40. The fixed costs incurred each year for factory upkeep and administrative expenses are $217,000. The machinery costs $2.6 million and is depreciated straight-line over 10 years to a salvage value of zero. a. What is the accounting break-even level of sales in terms of number of diamonds sold? (Do not round intermediate calculations.) b....
Dime a Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond can be sold for...
Dime a Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond can be sold for $130. The materials cost for a standard diamond is $80. The fixed costs incurred each year for factory upkeep and administrative expenses are $206,000. The machinery costs $1.2 million and is depreciated straight-line over 10 years to a salvage value of zero. a. What is the accounting break-even level of sales in terms of number of diamonds sold? (Do not round intermediate calculations.) b....
Dime a Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond can be sold for...
Dime a Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond can be sold for $140. The materials cost for a standard diamond is $40. The fixed costs incurred each year for factory upkeep and administrative expenses are $203,000. The machinery costs $1.4 million and is depreciated straight-line over 10 years to a salvage value of zero. a. What is the accounting break-even level of sales in terms of number of diamonds sold? (Do not round intermediate calculations.) b....
4. Dime a Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond can be sold...
4. Dime a Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond can be sold for $100. The material cost for a standard diamond is $40. The fixed costs incurred each year for factory upkeep and administrative expenses are $200,000. The machinery costs $1 million and is depreciated straight-line over 10 years to a salvage value of zero. a) What is the accounting break-even level of annual sales in terms of number of diamonds sold? Assume the company is...
Problem 10-11 Break-Even (LO3) Dime a Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond...
Problem 10-11 Break-Even (LO3) Dime a Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond can be sold for $120. The materials cost for a standard diamond is $70. The fixed costs incurred each year for factory upkeep and administrative expenses are $215,000. The machinery costs $2.3 million and is depreciated straight-line over 10 years to a salvage value of zero. a. What is the accounting break-even level of sales in terms of number of diamonds sold? b. What...
Modern Artifacts can produce keepsakes that will be sold for $80 each. Nondepreciation fixed costs are...
Modern Artifacts can produce keepsakes that will be sold for $80 each. Nondepreciation fixed costs are $2,800 per year, and variable costs are $40 per unit. The initial investment of $5,000 will be depreciated straight-line over its useful life of 5 years to a final value of zero, and the discount rate is 12%. a. What is the accounting break-even level of sales if the firm pays no taxes? (Do not round intermediate calculations. Round your answer to the nearest...
CollegePak Company produced and sold 79,000 backpacks during the year just ended at an average price...
CollegePak Company produced and sold 79,000 backpacks during the year just ended at an average price of $39 per unit. Variable manufacturing costs were $16.50 per unit, and variable marketing costs were $3.78 per unit sold. Fixed costs amounted to $549,000 for manufacturing and $223,200 for marketing. There was no year-end work-in-process inventory. (Ignore income taxes.) Required: Compute CollegePak’s break-even point in sales dollars for the year. (Do not round intermediate calculations. Round your final answer up to the nearest...
You are considering investing in a company that cultivates abalone for sale to local restaurants. Use...
You are considering investing in a company that cultivates abalone for sale to local restaurants. Use the following information: Sales price per abalone = $43.50 Variable costs per abalone = $10.70 Fixed costs per year = $454,000 Depreciation per year = $135,000 Tax rate = 25% The discount rate for the company is 17 percent, the initial investment in equipment is $945,000, and the project’s economic life is 7 years. Assume the equipment is depreciated on a straight-line basis over...
ou are considering investing in a company that cultivates abalone for sale to local restaurants. Use...
ou are considering investing in a company that cultivates abalone for sale to local restaurants. Use the following information: Sales price per abalone = $44.40 Variable costs per abalone = $11.15 Fixed costs per year = $490,000 Depreciation per year = $120,000 tax rate = 24% The discount rate for the company is 16 percent, the initial investment in equipment is $960,000, and the project’s economic life is 8 years. Assume the equipment is depreciated on a straight-line basis over...
Anu’s Amusement Center has collected the following data for operations for the year. Total revenues $...
Anu’s Amusement Center has collected the following data for operations for the year. Total revenues $ 1,792,000 Total fixed costs $ 571,200 Total variable costs $ 1,024,000 Total tickets sold 64,000 a. What is the average selling price for a ticket? b. What is the average variable cost per ticket? c. What is the average contribution margin per ticket? (Do not round intermediate calculations.) d. What is the break-even point? (Do not round intermediate calculations.) e. Anu has decided that...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT