Question

1. The cost of a machine for producing a certain part is $50,000. The machine is expected to have an annual maintenance cost of $15,000 and an $5,000 salvage value after its 5-year economic life. If the variable cost for producing the part is $2.50 per unit and the part can be sold for $5.00 per unit, how many parts per year must the company sell in order to breakeven at an interest rate of 12% per year?

Answer 1

A15 D E F | Selling Price Per Unit Less: Variable Cost Per Unit Contribution Per Unit $ $ $ H 5.00 2.50 2.50 C 1 Particulars Amount 2 Annual Cost 15000 3 PV @12% Interest for 5 years 2.8926 $ 43,389.00 4 Less: 5 Salvage Value 5000 6 PV @ 5th Year 0.1631 $ 815.50 $ 42,573.50 8 Add: Initial Cost $ 50,000.00 9 Total Cost @ Present Value (a) $ 92,573.50 10 Contribution Per Unit (b) $ 2.50 11 Breakeven Unit (a)/(b) $ 37,029.40 12 13 Breakeven Unit (Round Off) $ 37,030.00 14