A new project will allow you to sell a new product at $50 each. Variable costs a

Question

A new project will allow you to sell a new product at $50 each. Variable costs are $30 each and fixed costs would run $50,000 per year. If there is no initial investment required, how many units would you have to sell annually to break-even (aka the

A new project will allow you to sell a new product at $50 each. Variable costs are $30 each and fixed costs would run $50,000 per year. If there is no initial investment required, how many units would you have to sell annually to break-even (aka the "accounting break-even quantity") and what is your average cost selling that number of units? A new project will allow you to sell a new product at $50 each. Variable costs are $30 each and fixed costs would run $50,000 per year. If there is an initial investment required of $80,000 and the project has a four year life (no salvage), how many units would you have to sell annually to break-even including the recovery of initial investment. (aka the "accounting break-even quantity")?

Explanation / Answer

at break even

profit = 0

revenues - costs = 0

let x be the break even units

50* x - 30*x - 50000 = 0

break even units x= 2500 units

average cost = 125000

b) let y units have been sold to recover the investment

cash flow per year = 50y - 30y -50000

NPV = 0

-80000 + 4* (50y - 30y -50000) = 0

break even units annually y = 3500 units

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