A 4 year project is estimated to produce a product with the following information: selling price = $57 per unit; variable costs are $32 per unit; fixed costs are $9,000; required return is 12%; initial investment = $18,000.Calculate the financial break-even.
A)597
B)540
C)525
D)490

Question

Quizplus · Accepted Answer

The financial break-even point is the number of units that need to be sold to cover all costs, including the initial investment, and to achieve the required return. To calculate it, we first determine the contribution margin per unit, which is the selling price minus the variable cost: $57 - $32 = $25 per unit. Then, we calculate the total fixed costs including the required return on the initial investment. The required return on the initial investment is 12% of $18,000, which equals $2,160. Therefore, the total fixed costs including the required return are $9,000 + $2,160 = $11,160. Finally, we divide the total fixed costs by the contribution margin per unit to find the financial break-even point: $11,160 / $25 = 446.4 units. However, since the provided options do not include this result, it appears there was a mistake in my calculation or interpretation. Revisiting the calculation with a focus on achieving the required return and covering fixed costs might provide a different approach or clarification on the correct option based on the given choices.

A 4 Year Project Is Estimated to Produce a Product