The marvel mfg company is considering whether or not to construct a new robotic
ID: 2772752 • Letter: T
Question
The marvel mfg company is considering whether or not to construct 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 salvage value. Annual sales from the new facility are expected to be 2,000 units with a price of $1,000 per unit. Variable production costs are $600 per unit, the fixed cash expenses are $80,000 per year.
A) Find the accounting and the cash break-even units of production.
B) Will the plant make a profit based on its current expected level of operations?
C) Will the plant contribute cash flow of the firm at the expected level of operations?
Explanation / Answer
Accounting Fixed expense = 80,000 + 100,000 = 180,000
Cash fixed expense = $ 80,000
contribution per unit = 1000 - 600 = 400 per unit
A)accounting BEP = Accounting FIxed csot /contribution per unit
= 180,000 / 400
= 450 units
cash BEP =cash fixed cost /contribution per unit
= 80,000 / 400
= 200 units
B) Net income = [(contribution per unit * units sold ) -Accountinf fixed cost]
= [(400 * 2000) - 180,000]
= [ 800,000 - 180,000]
= $ 620,000
yes plant make a profit of 620,000 year
C) Cash flow contribution = (contribution per unit *units sold ) -cash fixed cost
= (400 *2000 ) - 80,000
= 800,000 - 80,000
= $ 720,000
yes plant make a cash contibution of $ 720,000
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