Problem
A company is producing a premium chocolate cake to be distributed to supermarkets and restaurants. The sales price for each cake is $35, the variable costs per unit is $7.50, total annual fixed costs is $350,000, the tax rate is 24%, and the discount rate is 12%. The initial investment in baking equipment is $630,000 and it has 7 years useful life, which is the same as the project life. The company is using a simplified straight-line depreciation method.
i. Calculate the accounting break-even point for the project.
ii. Calculate the financial break-even point for the project.