Question

The firm is considering an expansion project with estimated fixed costs of $100,000, depreciation of $15,000, variable costs per unit of $60, and an estimated sales price of $80 per unit. Ignore taxes. What is the accounting break-even quantity?

Answer 1

Break Even point is the point at which Total Costs and Total Revenues are equal. It is used to determine the number of units or sales which will recover the total costs.

It is Calculated as below :

Break Even Sales = Fixed Cost / Contribution Margin

Break Even Quantity = Fixed Cost / (Sales price per unit - Variable cost per unit)

Ans : Calculation of break-even quantity

Depreciation is a fixed cost and thus will be included in the calculation

Fixex Cost = $100,000 + $15,000 = $115,000

Break Even Quantity = Fixed Cost / (Sales price per unit - Variable cost per unit)
= $115,000 / ($80 - $60)
= $115,000 / $20
= 5750 Qty

Accounting Break Even Qty = 5,750