Answered: The following estimates have been…

The following estimates have been prepared for a project: Fixed costs: $5,400 Depreciation: $3,600 Sales price per unit: $3 Accounting break-even: 50,000 units What must be the variable costper unit?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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MM currently carries out process B the output from which can be sold for $20 per unit and has variable costs of $7.50 per unit. Process B has directly attributable fixed operating costs of $ 40000 per annum. MM also carries out process C by using equipment that has running costs of $ 25000 per annum. The equipment could be sold now for $50000 (but this would incur dismantling costs of $7500) or in one year’s time for $45000 with dismantling costs of $8750.Process B could be adapted so that it incorporated process C.The existing process B machinery would have to be removed, either now at a dismantling cost of $12500 and with the sale of the machinery for $100000 or in one year’s time for $75000 with dismantling costs of $13750.Alternative process B machinery would have to be leased. This would cost $10000 per annum and have annual fixed costs of $30000.The existing process B machinery originally costs $250000 which bought five years ago. It is being depreciated at 10% per…
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