ABC corporation has existing property and equipment that is not in use. The company is considering...

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ABC corporation has existing property and equipment thatis not in use. The company is considering the use of this propertyand equipment. One option is to use the property and equipment toproduce a new product. Estimates for demand of this product are30,000 units annually for the first 5 years and 20,000 unitsannually for the following 6 years. Beyond that, the product isconsidered to be obsolete and production will cease. Price andvariable costs would be $100 and $65, respectively. Fixed costswould be $225,000 per year.
What is the Break-even price?

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4.4 Ratings (938 Votes)

Below is the table

Assuming since 30000 units can be sold for 1st 5 years below table states that if 2000 units were produced and increased year on year, by 6th year if used to full capacity break-even will happen

Years	Units	Sales	Variable cost	Fixed cost	Total cost	Profit/loss
1	2000	200,000	130000	225000	355000	(155,000)
2	3000	300,000	195000	225000	420000	(120,000)
3	4000	400,000	260000	225000	485000	(85,000)
4	5000	500,000	325000	225000	550000	(50,000)
5	6000	600,000	390000	225000	615000	(15,000)
6	20000	2,000,000	1300000	225000	1525000	475,000

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Transcribed Image Text

ABC corporation has existing property and equipment thatis not in use. The company is considering the use of this propertyand equipment. One option is to use the property and equipment toproduce a new product. Estimates for demand of this product are30,000 units annually for the first 5 years and 20,000 unitsannually for the following 6 years. Beyond that, the product isconsidered to be obsolete and production will cease. Price andvariable costs would be $100 and $65, respectively. Fixed costswould be $225,000 per year.What is the Break-even price?