Suppose the new product in Example 16.5 has a profit of $5.00 per widget, but the sales projection is of off by 50 percent and the company is able to sell only 500 per day. What is the new break even point?

Example 16.5

Assume the cost of producing a new product is $1,000,000. Then the BEP occurs when net profit from the product reaches $1,000,000. Let’s say the profit per widget is $1.00 and we’re selling 1,000/day. What is the BEP in years?

Need: BEP = ______ years for a project costing $1,000,000 assuming you are selling 1,000/day with a profit of $1.00 per widget.

Know–How: Equate cost to total money stream.