A project has the following estimated data: price = $80 per unit; variable costs = $55 per unit; fixed costs = $25,000; required return = 15%; initial investment = $44,000; life = five years. What is the accounting break-even quantity?
A) 1,000 units.
B) 1,352 units.
C) 1,525 units
D) 1,775 units
E) 1,950 units

Question

Quizplus · Accepted Answer

The accounting break-even quantity is calculated by dividing the total fixed costs by the difference between the price per unit and the variable cost per unit. Here, it's $25,000 / ($80 - $55) = $25,000 / $25 = 1,000 units. However, the correct calculation should also consider the annual depreciation of the initial investment, which is $44,000 / 5 years = $8,800. Therefore, the correct formula for the break-even quantity in accounting terms is (Fixed Costs + Annual Depreciation) / (Price - Variable Costs) = ($25,000 + $8,800) / ($80 - $55) = $33,800 / $25 = 1,352 units.

A Project Has the Following Estimated Data: Price = $80