Modern Artifacts can produce keepsakes that will be sold for $80 each. Nondeprec

Question

Modern Artifacts can produce keepsakes that will be sold for $80 each. Nondepreciation fixed costs are $2,800 per year, and variable costs are $40 per unit. The initial investment of $5,000 will be depreciated straight-line over its useful life of 5 years to a final value of zero, and the discount rate is 12%.

a. What is the accounting break-even level of sales if the firm pays no taxes? (Do not round intermediate calculations. Round your answer to the nearest whole number.) Acounting break-even level of sales units

b. What is the NPV break-even level of sales if the firm pays no taxes? (Do not round intermediate calculations. Round your answer to the nearest whole number.) NPV break-even level of sales units

c. What is the accounting break-even level of sales if the firm’s tax rate is 30%? (Do not round intermediate calculations. Round your answer to the nearest whole number.) Acounting break-even level of sales units

d. What is the NPV break-even level of sales if the firm’s tax rate is 30%? (Do not round intermediate calculations. Round your answer to the nearest whole number.) NPV break-even level of sales units

Explanation / Answer

(a) Accounting Break even sale($) = FIxed cost / contribution margin ratio

=$3800 / [($80-$40)/$80]

= $3800 / [40/80 *100]

=$3800/ 50%

= $7600

Break even sale (units) = Fixed cost / contribution margin per unit

= $3800/ ($80 - $40)

=95 units

Note:- Fixed cost = non depreciable cost + depreciation

=$2800 + [$5000/ 5 year]

= 2800 + 1000

= $3800

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