Question

A company is considering a project with a cash break-even point of 22,600 units. The selling price is $28 a unit, the variable cost per unit is $13, and depreciation is $14,000. What is the projected amount of fixed costs

Answer 1

Answer:

fixed Cost 39,000

Explanation:

The break even point is the level of sales at which net income equal to zero.

This means the company operates and pays their fixed and variable cost

The formula for break even point in units is:

$BEP_{units} = \frac{Fixed \: cost}{Contribution \: per \: units}$

Where:

Contribution per unit = Selling price - variable cost

15 per unit           =  28 - 13

We are given the BEP and we need to solve for Fixed cost

$22,600 = \frac{Fixed \: cost}{15}$

Fixed Cost = 22,600 x 15 = 39,000

The depreciation expense is irrelevant for the case, we can solve for the total fixed cost directly by using the BEP