The Mini-Max Company has the following cost information on its new prospective project.Calculate the accounting break-even point. Initial investment: $700
Fixed costs: $200 per year
Variable costs: $3 per unit
Depreciation: $140 per year
Price: $8 per unit
Discount rate: 12%
Project life: 5 years
Tax rate: 34%

Question

Quizplus · Accepted Answer

First, we calculate the contribution margin per unit which is equal to the price per unit minus the variable cost per unit:
Contribution Margin = Price - Variable Cost = $8 - $3 = $5
Then, we calculate the accounting break-even point by dividing the total fixed costs and depreciation by the contribution margin per unit:
Accounting Break-Even Point = (Fixed Costs + Depreciation) / Contribution Margin
ABEP = ($200 + $140) / $5 = 68 units
Therefore, the accounting break-even point is 68 units per year. So, the best choice is B.

The Mini-Max Company Has the Following Cost Information on Its