Time-Adjusted Cost-Volume-Profit Analysis (LO2, 3)

Boardwalk Treat Shop is considering the desirability of producing a new chocolate candy called Pleasure Bombs. Before purchasing the new equipment required to manufacture Pleasure Bombs, Marty Dey, the shop’s proprietor performed the following analysis:

UmtisellingipnicGrt uric s tee se arin y cc cewek ae ae ee ee $1.45 VahlaploimeanulactuninarancisellinG COStS. nae suai sien ren nena anenine nanan (let)

Uiilhs Kozooil dl olnTineVCh Alene 6 od obo OBA Ae oh om@adangscecsoae « $0.30 Annual fixed costs Depreciation (straight-line for 4 years) .............0+0.0+s 0e1e e $15,000 OUNtela El orci gh) Oteee rEMG ore Th Soyo 30,000 MOT ia Sica oc -UPeM ee ol vata nae eR te oo ORC $45,000 Annual break-even sales volume = $45,000 + $0.30 = 150,000 units Because the expected annual sales volume is 160,000 units, Dey decided to undertake the production of Pleasure Bombs. This required an immediate investment of $60,000 in equipment that has a life of four years and no salvage value. After four years, the production of Pleasure Bombs will be discontinued.

Required

a. Evaluate the analysis performed by Dey.

b. If Boardwalk Treat Shop has a time value of money of 14 percent, should it make the investment with projected annual sales of 160,000 units?

c. Considering the time value of money, what annual unit sales volume is required to break even? LO.1