The Mini-Max Company has a prospective 5-year project with an initial cost of $318,900,annual fixed costs of $45,200,variable costs per unit of $16.78,and a sales price of $29.95.The discount rate is 13 percent and the tax rate is 24 percent.The firm uses straight-line depreciation over a project's life for all fixed assets.What is the accounting break-even point in units per year?
A)7,850
B)8,275
C)10,315
D)11,304
E)11,429

Question

Quizplus · Accepted Answer

The accounting break-even point in units per year is calculated by finding the point where total revenue equals total costs (including operating costs and depreciation, but excluding the cost of capital). The formula for the accounting break-even point in units ($Q$) is:$$Q = \frac{{\text{Fixed Costs} + \text{Depreciation}}}{{\text{Price per Unit} - \text{Variable Cost per Unit}}}$$Given:- Initial cost (which is also the total depreciation over the project's life since straight-line depreciation is used) = $318,900- Annual fixed costs = $45,200- Variable costs per unit = $16.78- Sales price per unit = $29.95- The project's life = 5 yearsFirst, calculate the annual depreciation:$$\text{Depreciation} = \frac{{\text{Initial Cost}}}{{\text{Project's Life}}} = \frac{{318,900}}{5} = 63,780$$Then, plug the values into the break-even formula:$$Q = \frac{{45,200 + 63,780}}{{29.95 - 16.78}} = \frac{{108,980}}{{13.17}} \approx 8,275 \text{ units}$$Therefore, the accounting break-even point is approximately 8,275 units per year.

The Mini-Max Company Has a Prospective 5-Year Project with an Initial