Sensitivity Analysis Break Even The corporate controller ha

Sensitivity Analysis, Break Even – The corporate controller has asked you to run some numbers in helping to determine whether to launch a new product line. Initial investment is $300,000 and will establish fixed costs of $200,000. Project Life is 10 years. With a quick production ramp the plan is to hit 20,000 units pricing out at $50.00 each. With variable cost of $35.00 per unit and a 21% tax rate the required return (hurdle rate) is 15%.

Question 22 (1 point)

What is the break/even in terms of units?

Question 22 options:

14,000

14,356

15,333

17,456

Solution

Correct asnwer is option C.$15,333

Calculation of Break even units of projects

Break even units = Total Fixed Cost / Contribution per unit

Total Fixed cost = Given fixed cost + Depreciation

=2,00,000+(3,00,000-0/10)

=2,30,000

Contribution Per unit = Sale price - Variable cost per unit = 50-35=15

So Break even units =230,000/15= 15,333 units