Question

We are evaluating a project that costs $756,000, has a six-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 67,000 units per year. Price per unit is $60, variable cost per unit is $25, and fixed costs are $665,000 per year. The tax rate is 35 percent, and we require a return of 20 percent on this project. Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within ±10 percent. Calculate the accounting break-even point.

Answer 1

Answer:

22,600 units

Explanation:

Depreciation = Asset price ÷ Usable life

                      = $756,000 ÷ 6

                      = $126,000

Break even point:

= (Fixed cost + Depreciation) ÷ (Sales price - Variable cost)

= ($665,000 + $126,000) ÷ ($60 - $25)

= $791,000 ÷ $35

= 22,600 units

Therefore, the accounting break-even point is 22,600 units.