The Marvel MFG. Company is considering whether or not to constuct a new robotic

Question

The Marvel MFG. Company is considering whether or not to constuct a new robotic production facility. The cost of this new facility is 600,000 and it is expected to have a six year life with annual depreciation expense of $100,000 and no savage value. Annual sales from the new facility are expected to be 2,000 units with a price of 1000 per unit. Variable production costs are 600 per unit, and fixed cash expenses are 80,000 per year.

Find the accounting aaand the cash break even units of production.

Will the plant make a profit based on its current expected level of operations?

Will the plant contribute cash flow to the firm at the expected level of operations?

Explanation / Answer

Answer: Accounting break-even point=Total fixed costs / Contribution margin per unit
= ($80,000 + 100,000) / ($1,000-$600)
=450units.
Cash break-even point= Cash fixed costs / Contribution margin per unit
= $80,000 / ($1,000-$600)
= 200 units.

Will the plant make a profit based on its current expected level of operations?

Answer: Yes, the plant will make a profit based on its current expected level of operations:
Excess units produced over break-even = 2000units- 450 units= 1,550 units
Contribution margin per unit = $1,000-$600 = $400
Net profit = $400 × 1,550= $620,000.

Will the plant contribute cash flow to the firm at the expected level of operations?

Answer:Yes, the plant will contribute cash flow to the firm at the expected level of operations:
Excess units produced over break-even = 2000units-200 units=1800units

cash flow=1800*400=$720000

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