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We are evaluating a project that costs $832,000, 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 40,000 units per year. Price per unit is $40, variable cost per unit is $15, and fixed costs are $728,000 per year. The tax rate is 35 percent, and we require a return of 18 percent on this project. Calculate the accounting break-even point.

Answer :

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Answer:

Break-even point (in unit) = 29,120

Break-even point (in dollars) = $1,164,800

Explanation:

Accounting break-even point refers to the point where total sales equal to overall costs. It means total costs do not exceed total revenue. In the break-even point, there is no loss and no profit.

Given,

Sales price per unit = $40

Fixed costs = $728,000

Variable costs per units = $15

We know,

Break-even point (in unit) = Fixed costs/(Sales price per unit - Variable costs per unit)

Break-even point (in unit) = $728,000/$(40 - 15)

Break-even point (in unit) = $728,000/$25

Break-even point (in unit) = 29,120

Again, Break-even point (in dollars) = $40*29,120 units

Break-even point (in dollars) = $1,164,800

It means if the company sells 29,120 units, the company does not have any profit or loss.

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