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Break even

8.7 Consider the following information for a big-screen television distributor:

Sales price per TV = $1,500
Variable costs per TV = $1,100
Fixed costs per year = $120,000
Depreciation per year = $20,000
Tax rate = 35%
How many units must the distributor sell in a given year to break even (in terms of accounting profit)?

8.12 J.'s Toys Inc. just purchased a $200,000 machine to produce toy cars. The machine will be fully depreciated by the straight-line method over its five-year economic life. Each toy sells for $25. The variable cost per toy is $5, and the firm incurs fixed costs of $350,000 each year. The corporate tax rate for the company is 25 percent. The appropriate discount rate is 12 percent. What is the present value break-even point for the project?

Solution Preview

8.7

Consider the following information for a big-screen television distributor:

Sales price per TV = $1,500
Variable costs per TV = $1,100
Fixed costs per year = $120,000
Depreciation per year = $20,000
Tax rate = 35%
How many units must the distributor sell in a given year to break even (in terms of accounting profit)?

Selling price= $1,500 per TV
variable cost= $1,100 per TV
Contribution= $400 per TV

Fixed Cost + Depreciation= $140,000 =120000+20000

Therefore, Breakeven units= 350 =140000/400

Answer: 350 TV sets

8.12
J.'s Toys Inc. just purchased a $200,000 machine to produce toy cars. The machine will be fully depreciated by the straight-line method over its five-year economic ...

Solution Summary

The solution provides answers to two questions on break even.

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