A producer of felt-tip pens has received a forecast of demand of 30,000 pens for

Question

A producer of felt-tip pens has received a forecast of demand of 30,000 pens for the coming month from its marketing department. Fixed costs of $21,000 per month are allocated to the felt-tip operation, and variable costs are 25 cents per pen.

a. Find the break-even quantity if pens sell for $4 each. (Round your answer to the next whole number.)

QBEP   _________ units

b. At what price must pens be sold to obtain a monthly profit of $24,000, assuming that estimated demand materializes? (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Price           $________

Explanation / Answer

A. Break even point = fixed costs /(sales price minus variable costs  

Break even point = 21000/(4-0.25)=5600 units

B. We know that

Profit = quantity ( price - variable costs)- fixed costs

24000= 30,000 (P-0.25)-21000

45000=30000P - 7500

52,500=30,000P

Price =1.75

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.