A project has an accounting break-even point of 1,600 units. The fixed costs are $3,200 and the depreciation expense is $200. The projected variable cost per unit is $20.50. What is the projected sales price?
A) $9.65
B) $14.75
C) $18.35
D) $20.50
E) $22.63

Question

Quizplus · Accepted Answer

The accounting break-even point is calculated as the point where total revenue equals total costs (including both variable and fixed costs). To find the sales price per unit, we need to calculate the total revenue at the break-even point and then divide by the number of units. The formula for the break-even point in units is given by:$$ \text{Break-even point in units} = \frac{\text{Fixed Costs} + \text{Depreciation}}{\text{Sales price per unit} - \text{Variable cost per unit}} $$Given that the break-even point is 1,600 units, fixed costs are $3,200, depreciation is $200, and variable cost per unit is $20.50, we can rearrange the formula to solve for the sales price per unit:$$ 1,600 = \frac{3,200 + 200}{\text{Sales price per unit} - 20.50} $$$$ 1,600(\text{Sales price per unit} - 20.50) = 3,400 $$$$ \text{Sales price per unit} - 20.50 = \frac{3,400}{1,600} $$$$ \text{Sales price per unit} = \frac{3,400}{1,600} + 20.50 $$$$ \text{Sales price per unit} = 2.125 + 20.50 $$$$ \text{Sales price per unit} = 22.625 $$Therefore, the projected sales price per unit is $22.63, rounding to the nearest cent.

A Project Has an Accounting Break-Even Point of 1,600 Units