Question

The accounting break-even production quantity for a project is 18,311 units. The fixed costs are $148,400 and the contribution margin per unit is $13.10. The fixed assets required for the project will be depreciated on straight-line basis to zero over the project's 4-year life. What is the amount of fixed assets required for this project?


A. $365,896

B. $332,400

C. $429,600

D. $448,500

E. $535,592

Answer 1

Answer: A. $365,896

Explanation:

The Contribution margin per unit is the Sales less the variable costs.

At the breakeven point, contribution margin should equal fixed assets.

Contribution margin

= 13.10 * 18,311

= $239,874.10

Contribution Margin - Fixed Assets

= 239,874.10 - 148,400

= $91,474.10

As there should be no profits, the $91,474.10 will be a cost as well which in this case is the depreciation per year.

As the fixed assets are depreciated over 4 years, the accumulated depreciation will be the costs;

= 91,474.10 * 4

= $365,896.4‬0

=$365,896