Problem 9-22 Accounting Break-Even Samuelson, Inc., has just purchased a $687,00

Question

Problem 9-22 Accounting Break-Even Samuelson, Inc., has just purchased a $687,000 machine to produce calculators. The machine will be fully depreclated by the straight-line method over Its economic life of slx years and will produce 48,000 calculators each year. The varlable production cost per calculator is $10, and total fixed costs are $995,000 per year. The corporate tax rate for the company is 35 percent For the firm to break even In terms of accounting profit, how much should the firm charge per calculator? (Do not round Intermediate calculations and round your answer to 2 decimal places, e.g, 32.16.) Break-even price $

Explanation / Answer

Depreciation expense per year = Purchase price / Life years

                                                = $687,000 / 6

                                                = $114,500

This is included in total fixed cost; therefore, there should not be any further adjustment.

Break-even price is the price at which the firm incurs no-profit no-loss. Let such price be X.

Now by the formula,

Net profit or (loss) = Total sales – Total expenses

0 = (48,000 × X) – (Variable cost + Fixed cost + Tax amount)

0 = 48,000X – [48,000 × 10 + 995,000 + (Total sales – Variable cost – Fixed cost) × 0.35]

0 = 48,000X – [480,000 + 995,000 + (48,000X – 480,000 – 995,000) × 0.35]

0 = 48,000X – [1,475,000 + 16,800X – 168,000 – 348,250]

0 = 48,000X – 1,475,000 – 16,800X + 168,000 + 348,250

0 = 31,200X – 958,750

31,200X = 958,750

X = 958,750 / 31,200

    = 30.73

Answer: Break-even price is $30.73.

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