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27 October, 06:02

Wexford Industrial Supply is considering a new project with estimated depreciation of $32,000, fixed costs of $36,000, and total sales of $73,460. The variable costs per unit are estimated at $4.20. What is the accounting break-even level of production?

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  1. 27 October, 07:25
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    The correct answer is 1,300 units.

    Explanation:

    According to the scenario, the given data are as follows:

    Estimated depreciation = $32,000

    Fixed cost = $36,000

    Total sales = $73,460

    Variable cost per unit = $4.20

    Let break even level of production = K

    than selling price = $73,460 : K

    So, we can calculate the break even level of production by using following formula:

    Break even level of production = (Fixed cost + Depreciation) : Contribution per unit

    Where, contribution margin = Selling price - variable price

    = ($73,460 : K) - $4.20

    By putting the value, we get

    K = ($36,000 + $32,000) : [ ($73,460 : K) - $4.20]

    K * ($73,460 : K - $4.2) = $68,000

    $73,460 - $4.2 K = $68,000

    K = ($73,460 - $68, 000) : $4.2

    K = $5,460 : $4.2

    = 1,300 units.
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