Dime a Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond

Question

Dime a Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond can be sold for $120. The materials cost for a standard diamond is $60. The fixed costs incurred each year for factory upkeep and administrative expenses are $211,000. The machinery costs $2.0 million and is depreciated straight-line over 10 years to a salvage value of zero. What is the accounting break-even level of sales in terms of number of diamonds sold? (Do not round intermediate calculations.) What is the NPV break-even level of diamonds sold per year assuming a tax rate of 35%, a 10-year project life, and a discount rate of 10%? (Do not round intermediate calculations. Round your answer to the nearest whole number.)

Explanation / Answer

Contribution=$120-$60=$60

Fixed cost=$211,000+$2,000,000/10=$411,000

Break even=$411,000/$60=6,850 diamonds

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