Fill This Form To Receive Instant Help
Fill This Form To Receive Instant Help
Homework answers / question archive / The marvel mfg company is considering whether or not to construct a new robotic production facility
The marvel mfg company is considering whether or not to construct a new robotic production facility. The cost of this new facility is $612,000 and it is expected to have a six year life with annual depreciation expense of $102,000 and no salvage value. Annual sales from the new facility are expected to be 2,200 units with a price of $1,010 per unit. Variable production costs are $650 per unit, the fixed cash expenses are $82,000 per year.
A) Find the accounting and the cash break-even units of production.
B) Will the plant make a profit based on its current expected level of operations?
C) Will the plant contribute cash flow of the firm at the expected level of operations?
A) Accounting break even point = Fixed cash expense + Depreciation / Contribution per unit
Contribution per unit = Selling price per unit - variable cost per unit
= 1010 - 650
= 360 $
Fixed cash expense = $ 82000
Depreciation = $102000
Thus Accounting breakeven point = 102000+82000/360
= 184000/360
=511.11
i.e 512 units
Cash break even point = Fixed cash expense / Contribution per unit
= 82000/360
=227.78
i.e 228 units
B) From part a. we can observe that for making an accounting profit we have to sell only 512 units, but our expected units of sales is 2200 units, so we would make an accounting profit
Since Expected level of output is more than break even point , company will make profit
C) From part a. we can observe that cash break even units is 228 units, but firm expect to sell 2200 units, so firm can expect positive cash flow
