Question

# 21. A company is considering a 5-year project that opens a new product line and requires...

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.)

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

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