The accounting break-even production quantity for a project is 5,425 units. The fixed costs are $31,600 and the contribution margin is $6. What is the projected depreciation expense?
A) $700
B) $950
C) $1,025
D) $1,053
E) $1,100

Question

Quizplus · Accepted Answer

The accounting break-even point is when the total revenue equals total costs, including fixed and variable costs. The equation for accounting break-even point is:

Total revenue = Total costs
(P × Q) = (V × Q) + Fixed costs + Depreciation

Where:
P = Price per unit
Q = Quantity
V = Variable cost per unit

We know that the accounting break-even point is 5,425 units, fixed costs are $31,600 and contribution margin is $6. Thus, we can write:

($6 × 5,425) = ($0 × 5,425) + $31,600 + Depreciation

$32,550 = $31,600 + Depreciation

Depreciation = $950

Therefore, the projected depreciation expense is $950, which corresponds to choice B.

The Accounting Break-Even Production Quantity for a Project Is 5,425