If an additional piece of equipment is purchased for $100,000 and it is depreciated over five years with a $0 salvage value using straight line depreciation, the selling price per unit is $10 and the variable costs per unit is $5, then the amount of additional units that need to be sold to pay for the new piece of equipment would be 4,000 units.

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Quizplus · Accepted Answer

The additional depreciation expense per year is $100,000 / 5 = $20,000. The additional profit per unit is $10 - $5 = $5. Therefore, the number of additional units that need to be sold to pay for the new piece of equipment is $20,000 / $5 = 4,000 units.

If an Additional Piece of Equipment Is Purchased for $100,000