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We are evaluating a project that costs $841,218, has an eight-year life, and has no salvage value
We are evaluating a project that costs $841,218, has an eight-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 64,821 units per year. Price per unit is $35, variable cost per unit is $16, and fixed costs are $416,093 per year. The tax rate is 35%, and we require a return of 19% on this project.
Calculate the Accounting Break-Even Point. (Round answer to 0 decimal places. Do not round intermediate calculations)
Expert Solution
Computation of Accounting Break-Even Point:
Accounting Break-Even Point = (Fixed Cost + Depreciation)/Contribution Margin per Unit
Here,
Fixed Cost = $416,093
Depreciation = (Cost -Salvage Value)/Estimated Useful Life = ($841,218-0)/8 = $105,152.25
Contribution Margin per unit = Sales price per unit - Variable cost per unit = $35- $16 = $19
Accounting Break-Even Point = ($416,093+$105,152.25)/$19 = 27,433.96 or 27,434 units
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