The president of a local company, Online On-time, Inc., expects a product to hav

Question

The president of a local company, Online On-time, Inc., expects a product to have a
profitable life between 1 and 5 years. He wants to know the breakeven number of units
that must be sold annually to realize payback within each of the time periods of 1 year,
2 years, and so on up to 5 years. For the following data, find the answers:
a- Fixed costs: initial investment of $80,000 with $1000 annual operating cost.
b- Variable cost: $8 per unit.
c- Revenue: Twice the variable cost for the first 5 years and 50% of the variable
cost thereafter.

Explanation / Answer

Breakeven is point where revenues equals cost, so looking at the above table the Online On-time, Inc needs to produce yearly 2125 quantities in order to breakeven.

Year FC VC Q Revenue TC Cumulative Cost Cumulative Revenue Cuml Reve- Cuml Cost 0 80,000 0 0 80,000 80,000 0 -80,000 1 1000 17000 2125 34000 18,000 98,000 34000 -64,000 2 1000 17000 2125 34000 18,000 1,16,000 68000 -48,000 3 1000 17000 2125 34000 18,000 1,34,000 102000 -32,000 4 1000 17000 2125 34000 18,000 1,52,000 136000 -16,000 5 1000 17000 2125 34000 18,000 1,70,000 170000 0

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