Financial Break-Even L.J.’s Toys just purchased a £200,000 machine to produce toy cars.

The machine will be fully depreciated using 20 per cent reducing balances over its five-year
economic life. Each toy sells for £25. The variable cost per toy is £5, and the firm incurs fixed
costs of £350,000 each year. The corporate tax rate for the company is 25 per cent. The
appropriate discount rate is 12 per cent. What is the financial break-even point for the
project?

Financial Break Even Point = Fixed Costs/Contribution Margin per toy

Financial Break Even Point = 350,000/20 = 17,500 toys

Contribution Margin per toy = Sales price per toy less Variable Cost per toy
Contribution Margin per toy = 25 less 5 = 20