Question

ABC corporation has existing property and equipment that is not in use. The company is considering the use of this property and equipment. One option is to use the property and equipment to produce a new product. Estimates for demand of this product are 30,000 units annually for the first 5 years and 20,000 units annually for the following 6 years. Beyond that, the product is considered to be obsolete and production will cease. Price and variable costs would be $100 and $65, respectively. Fixed costs would be $225,000 per year.

What is the Break-even price?

Answer 1

Below is the table

Assuming since 30000 units can be sold for 1st 5 years below table states that if 2000 units were produced and increased year on year, by 6th year if used to full capacity break-even will happen

Years	Units	Sales	Variable cost	Fixed cost	Total cost	Profit/loss
1	2000	200,000	130000	225000	355000	(155,000)
2	3000	300,000	195000	225000	420000	(120,000)
3	4000	400,000	260000	225000	485000	(85,000)
4	5000	500,000	325000	225000	550000	(50,000)
5	6000	600,000	390000	225000	615000	(15,000)
6	20000	2,000,000	1300000	225000	1525000	475,000