Question

Samuelson, Inc., has just purchased a $714,000 machine to produce calculators. The machine will be fully depreciated by the straight-line method over its economic life of six years and will produce 53,000 calculators each year. The variable production cost per calculator is $11, and total fixed costs are $945,000 per year. The corporate tax rate for the company is 40 percent.

For the firm to break even in terms of accounting profit, how much should the firm charge per calculator? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Break-even price           $ ______

Answer 1

Let us assume the P is the break even price, we frame the equation as follows

6((53,000*P- 53,000*11 -945,000-119000 )*(1-0.4) )= 714,000

We subtract the fixed, variable cost and depreitaion and then take the tax effect and equate that to the cost

((53,000*P- 53,000*11 -945,000-119000 )*(1-0.4) ) = 714,000/6 = 119,000

(53,000*P- 53,000*11 -945,000-119000 )*(1-0.4) =119,000

(53,000*P- 53,000*11 -945,000-119000 ) =119,000/(1-0.4)

(53,000*P- 53,000*11 -945,000-119000 ) =198,333.33

P = 34.8176

P =34.82

Break even price =$34.82