The equipment needed to manufacture a product costs $1,000,000 to purchase. This equipment has a life of 5 years and a salvage value of $100,000. Fixed costs for this equipment are $50,000 per year while variable costs are $200 per unit of finished product. Assuming that an annual interest of 6% is used to account for the time value of money: (a) Find the equivalent uniform annual cost associated with this equipment when 10,000 units of finished product are produced each year. (b) Now suppose that each unit of finished product generates $300 in revenue. How many units need to be produced each year in order to break even on this equipment?
The equipment needed to manufacture a product costs $1,000,000 to purchase. This equipment has a life of 5 years and a salvage value of $100,000. Fixed costs for this equipment are $50,000 per year while variable costs are $200 per unit of finished product. Assuming that an annual interest of 6% is used to account for the time value of money: (a) Find the equivalent uniform annual cost associated with this equipment when 10,000 units of finished product are produced each year. (b) Now suppose that each unit of finished product generates $300 in revenue. How many units need to be produced each year in order to break even on this equipment?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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The equipment needed to manufacture a product costs $1,000,000 to purchase. This equipment has a life of 5 years and a salvage value of $100,000. Fixed costs for this equipment are $50,000 per year while variable costs are $200 per unit of finished product. Assuming that an annual interest of 6% is used to account for the time value of money:
(a) Find the equivalent uniform annual cost associated with this equipment when 10,000 units of finished product are produced each year.
(b) Now suppose that each unit of finished product generates $300 in revenue. How many units need to be produced each year in order to break even on this equipment?
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