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# 1. The marvel mfg. company is considering whether or not to

### Resolved Question:

1. The marvel mfg. company is considering whether or not to construct a new robotic production facility. The cost of this new facility is \$618,000 and it is expected to have a six-year life with annual depreciation expense of \$103,000 and no salvage value. Annual sales from the new facility are expected to be 1,960 units with a price of \$1,010 per unit. Variably production costs are \$610 per unit, while fixed cash expenses are \$78,000 per year.
A. Find the accounting and the cash break-even units of production
B. Will the plane make a profit based on its current expected level of operations?
C. Will the plant contribute cash flow to the firm at the expected level of operations?
Submitted: 5 years ago.
Expert:  Steven, M.Acc. replied 5 years ago.
Hello,

(A) Accounting break-even point:

Q = Total fixed costs / Contribution margin per unit
Q = (\$78,000 + 103,000) / (\$1,010 – 610)
Q = 452.5 units.

Cash break-even point:

Q = Cash fixed costs / Contribution margin per unit
Q = \$78,000 / (\$1,010 – 610)
Q = 195 units.

(B) Yes, the plant will make a profit based on its current expected level of operations:

Excess units produced over break-even = 1,960 – 452.5 = 1,507.5
Contribution margin per unit = \$1,010 – 610 = \$400
Net profit = \$400 × 1,507.5 = \$603,000.

To check:

Gross profit = Sales – COGS = \$1,979,600 – 1,195,600 = \$784,000
Overhead = \$103,000 + 78,000 = \$181,000.
Net profit = Gross profit – Overhead = \$784,000 – 181,000 = \$603,000.

(C) Yes, the plant will contribute cash flow to the firm at the expected level of operations:

Excess units produced over break-even = 1,960 – 195 = 1,765
Contribution margin per unit = \$1,010 – 610 = \$400
Net profit = \$400 × 1,765 = \$706,000.

To check:

Gross profit = Sales – COGS = \$1,979,600 – 1,195,600 = \$784,000