Financial Calculator Company proposes to invest $12 million in a new calculator making plant. Fixed costs are $3 million a year. A financial calculator costs $10 per unit to manufacture and can be sold for $30 per unit. If the plant lasts for 4 years and the cost of capital is 20%, what is the break-even level of annual rates? (Approximately)(Assume no taxes.)
A) 150,000 units
B) 342,290 units
C) 381,777 units
D) None of the above

Question

Quizplus · Accepted Answer

The break-even point is calculated by dividing the total fixed costs by the contribution margin per unit. The contribution margin per unit is the selling price per unit minus the variable cost per unit. Here, the fixed costs are $3 million per year, the selling price is $30, and the variable cost is $10, giving a contribution margin of $20 per unit. Therefore, the break-even point is $3,000,000 / $20 = 150,000 units. However, considering the investment and cost of capital, the break-even point is adjusted to approximately 381,777 units.

Financial Calculator Company Proposes to Invest $12 Million in a New