Question

The Solar Calculator Company proposes to invest $5 million in a new calculator-making plant that will depreciate on a straight-line basis. Fixed costs are $2 million per year. A calculator costs $5 per unit to manufacture and sells for $20 per unit. If the plant lasts for three years and the cost of capital is 12 percent, what is the accounting break-even level of annual sales

Answer 1

Answer:

The Break-even annual sales= $2,222,222.22

Explanation:

The break-even sales is the amount of revenue that a business must generate that would equate its total costs to total revenue. At the break even sales, the contribution is exactly to total iced cost, and the business makes no profit or loss

Contribution margin ratio = (20-5)/20=75%

Break-even (units) = Total general fixed cost /(selling price- variable cost)

                              = 5,000,000/75%

                            =  $6,666,666.67

The annual sales = $6,666,666.67/3 =   $2,222,222.22  

The Break-even annual sales= $2,222,222.22