Question

21. A company is considering a 5-year project that opens a new product line and requires an initial outlay of $85,000. The assumed selling price is $97 per unit, and the variable cost is $61 per unit. Fixed costs not including depreciation are $20,000 per year. Assume depreciation is calculated using stright-line down to zero salvage value. If the required rate of return is 11% per year, what is the accounting break-even point? (Answer to the nearest whole unit.)

22. A company is considering a 5-year project that opens a new product line and requires an initial outlay of $80,000. The assumed selling price is $93 per unit, and the variable cost is $66 per unit. Fixed costs not including depreciation are $20,000 per year. Assume depreciation is calculated using stright-line down to zero salvage value. If the required rate of return is 10% per year, what is the cash break-even point? (Answer to the nearest whole unit.)

23.  A company is considering a 5-year project that opens a new product line and requires an initial outlay of $80,000. The assumed selling price is $94 per unit, and the variable cost is $69 per unit. Fixed costs not including depreciation are $19,000 per year. Assume depreciation is calculated using stright-line down to zero salvage value. If the required rate of return is 11% per year, what is the financial break-even point? (Answer to the nearest whole unit.)

Answer 1

Answer to Question No. 21

Accounting Break Even Point = Fixed Cost / Contribution Margin per unit

Depreciation = (85,000 – 0) / 5
Depreciation = $17,000
Fixed Cost = $20,000 + $17,000
Fixed Cost = $37,000

Contribution Margin per unit = Selling Price per unit – Variable Cost per unit
Contribution Margin per unit = $97 - $61
Contribution Margin per unit = $36

Accounting Break Even Point = 37,000 / 36
Accounting Break Even Point = 1,027.77
or Accounting Break Even Point = 1,028 units