Question

The Mini-Max Company has a prospective 5-year project with an initial cost of $318,900, annual fixed costs of $45,200, variable costs per unit of $16.78, and a sales price of $29.95. The discount rate is 13 percent and the tax rate is 24 percent. The firm uses straight-line depreciation over a project's life for all fixed assets. What is the accounting break-even point in units per year?

a. 7,850 units
b. 8,275 units
c. 10,315 units
d. 11,304 units
e. 11,429 units

Answer 1

Option (b) is correct.

Step-by-step explanation:

Given that,

Initial cost of 5-year project = $318,900

Annual fixed costs = $45,200

Variable costs per unit = $16.78

Sales price = $29.95

Discount rate = 13 percent

Tax rate = 24 percent

Accounting break-even point in units:

= (Fixed Cost + Depreciation) ÷ (Sales price - Variable costs per unit)

= [$45,200 + ($318,900 ÷ 5)] ÷ ($29.95 - $16.78)

= 8,275 units