# Finance Chapter 7 Sample Problems Answers

### Finance Chapter 7 Sample Problems Answers

1. Wilson's Meats has computed its fixed costs to be $.60 for every pound of meat it sells given an average daily sales level of 500 pounds. It charges $3.89 per pound of top-grade ground beef. The variable cost per pound is $2.99. What is the contribution margin per pound of ground beef sold?A. $0.30

B. $0.60

C. $0.90

D. $2.99

E. $3.89

Contribution margin = $3.89 - $2.99 = $.90

2. A project has an accounting break-even point of 2,000 units. The fixed costs are $4,200 and the depreciation expense is $400. The projected variable cost per unit is $23.10. What is the projected sales price?

A. $20.80

B. $21.00

C. $21.20

D. $25.40

E. $25.60

Accounting break-even Q = 2,000 = ($4,200 + $400) (P - $23.10); P = $25.40

3. The Mini-Max Company has the following cost information on its new prospective project. Calculate the present value break-even point.

Initial investment: $700

Fixed costs are $200 per year

Variable costs: $3 per unit

Depreciation: $140 per year

Price: $8 per unit

Discount rate: 12%

Project life: 3 years

Tax rate: 34%

A. 68 units per year

B. 75 units per year

C. 84 units per year

D. 114 units per year

E. None of the above

EAC = $700/A.12,3 = $700/2.4018 = $291.45 or

N=3

I/Y=12

PV=700

CPT PMT=291.45

PV BEP = [EAC + FC(1 - Tc) - Dep(Tc)]/(CM(1 - Tc)) = [$291.45 + $200(.66) - $140(.34)]/5(.66) = 113.89 units = 114 units