Question

Wexford Industrial Supply is considering a new project with estimated depreciation of $32,000, fixed costs of $36,000, and total sales of $73,460. The variable costs per unit are estimated at $4.20. What is the accounting break-even level of production?

Answer 1

The correct answer is 1,300 units.

Step-by-step explanation:

According to the scenario, the given data are as follows:

Estimated depreciation = $32,000

Fixed cost = $36,000

Total sales = $73,460

Variable cost per unit = $4.20

Let break even level of production = K

than selling price = $73,460 ÷ K

So, we can calculate the break even level of production by using following formula:

Break even level of production = (Fixed cost + Depreciation) ÷ Contribution per unit

Where, contribution margin = Selling price - variable price

= ($73,460 ÷ K) - $4.20

By putting the value, we get

K = ( $36,000 + $32,000) ÷ [ ($73,460 ÷ K) - $4.20]

K × ($73,460 ÷ K - $4.2) = $68,000

$73,460 - $4.2 K = $68,000

K = ($73,460 - $68, 000) ÷ $4.2

K = $5,460 ÷ $4.2

= 1,300 units.