Question

Process has a FCI of 500 MM. The useful life period of the processis taken to be 10 years. The salvage value of the process is 50 MM. Other fixed chargesfor the process (property taxes, insurance, salaries, etc.) are 30 MM/year. The operatingcost of the process is 250/ tonne. Maximum production capacity of the process is 300,000tonne/year. The selling price of the product is 1000/ tonne. What is the break-even pro-duction rate (tonne/year)?

Answer 1

the break even point in tons = 100,000 per year

Step-by-step explanation:

if the purchase cost is 500 million, the life span is 10 years, and the residual value is 50 million, then the depreciation per year = 450 million / 10 years = 45 million per year.

If other fixed costs = 30 million per year, then the total fixed costs = 75 million per year

operating costs are 250 per ton, and the price of each ton is 1,000. That means that the contribution margin per ton = 1,000 - 250 = 750

the break even point in tons = 75,000,000 / 750 = 100,000 per year