Kesler Products is considering a project producing metal detecting sandals. The
ID: 2781442 • Letter: K
Question
Kesler Products is considering a project producing metal detecting sandals. The project will cost $650,000, have a three-year life, straight-line depreciation over three years, and no salvage value. The sandals will sell for $45 with variable costs of $9.00 and fixed costs of $250,000. Kesler's required rate of return on the project is 15 percent Round your answers to the nearest whole number and no commas. What is the cash break-even? What is net income at the cash break-even quantity (assume zero interest expense and zero taxes)? What is the accounting break-even? What is net income at the accounting break-even quantity (assume zero interest expense and zero taxes)? What is the financial break-even? What is net income at the financial break-even quantity (assume zero interest expense and zero taxes)?Explanation / Answer
Contribution pu= Sales pu- variable cost pu
=45-9= $36 pu
Depriciation= 650000/3= $216666.67
Cash breakeven point= Fixed cost- depriciation/Contribution pu
= (250000-216666.67)/36
= 925.92 units or 926 units
Cash Breakeven point is the Firms' level of Revenuefrom sales that provides only positive cashflow. Net income at breakeven quantity is calculated here under:
Accounting braekeven = Fixed cost + depn / Contribution pu
= (250000+216666.67)/36
=12962.96 units or 12963 units
Accounting breakeven is the level of sales at which firm generates zero profits . Net Income at break even quantity is calculated here under:
Financial Breakeven is the level of EBIT which covers the firms' financial cost i.e., Interest expenses( After tax) and Preference Dividend. There is no interest Expense in the question.
Considering cash breakeven point will be the financial breakeven point i.e., 926 units and the corresponing net income will be - $433333.34
Particulars Amount($) Contribution (925.92*36) 33333.33 Less: Fixed Cost 250000 Less: depn. 216666.67 Net Income -433333.34Related Questions
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