Question

Use straight line depreciation instead of $140

3. (20 points) The Ons Company has the following cost information on its new project: Initial investment: $700 Fixed costs are $200 per year Variable costs: $3 per unit Depreciation: $140 per year Price: $8 per unit Discount rate: 12% Project life: 3 years Tax rate: 34% a) Calculate the accounting and financial break-even quantities. b) Draw on a graph how the accounting and financial break-even quantity would change as the price changes? (That is, calculate how Qbreak-even would change as a function of price for both accounting and financial break even points. You can use two separate graphs or have them on the same graph.)

Answer 1

Requirement 1
	Brighter	Cleaner
Contribution margin/unit	$             800.00	$ 300.00
Sales mix (based on units)	0.4	0.6	1
Weighted Avg CM per unit			$          500.00
Total Fixed costs to be recovered			$ 2,67,500.00
./. Weighted avg CM per unit			$          500.00
Total units to breakeven			535
Requirement 2
	Brighter	Cleaner
Sales Mix	0.4	0.6	1
Breakdown	214	321	535
Requirement 3
Indirect approach :
Total units needed to breakeven	535
multiply : weight avg selling price	1000
Overall Break even point in sales dollars	$5,35,000.00