87. Sechssonic has found that it is indifferent between purchasing a high-capaci
ID: 2763019 • Letter: 8
Question
87. Sechssonic has found that it is indifferent between purchasing a high-capacity vacuum sealing machine or a lower capacity machine as long as sales are 200 units per month. The price of each sealed beam light is $50. The high-capacity machine has cash expenses of $10,000 per month, while the other alternative has cash expenses of $5,000 per month and depreciation and amortization expenses of $2,000 per month. Under high capacity, the variable costs per unit are $10; and they are $40 for the other alternative. If the firm bases its decisions on the accounting operating profit break-even, then what are the depreciation expenses under the high-capacity alternative?
Explanation / Answer
Profit= Sales-Fixed Cost- Variable Cost
Lower Capacity Machine:
Total Sales = 200*$50 = $10000
Total Fixed Expenses = $5000 + $2000 = $7000
Variable cost per unit = 40
Profit= 10000-7000-(40)(200) =$(5000)
high-capacity vacuum sealing machine
Fixed Cost= 10000+ Depreciatoin Expenses
Variable cost per unit = $10
It is stated that Indifference in Purchasing either Machines.It means Profit is same.
Hence
$(5000)= $10000-$10000-Depreciation-$10*200
Depreciation = 10000-10000-2000+5000
=$3000
depreciation expenses under the high-capacity alternative= $3000
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