A producer of felt-tip pens has received a forecast of demand of 38,000 pens for

Question

A producer of felt-tip pens has received a forecast of demand of 38,000 pens for the coming month from its marketing department. Fixed costs of $29,000 per month are allocated to the felt-tip operation, and variable costs are 34 cents per pen.

A producer of felt-tip pens has received a forecast of demand of 38,000 pens for the coming month from its marketing department. Fixed costs of $29,000 per month are allocated to the felt-tip operation, and variable costs are 34 cents per pen.

Explanation / Answer

Annual Demand= 38000

Fixed Cost= 29000

Sales=38000*3=114000

Variable cost= 38000*3*34%=38760 VC per unit is 3*34%= 1.02

Contribution=3-1.02=1.98

Break Even Quantity= Fixed Cost/ contribution

=29000/1.98

Break Even Quantity= 14647 units

Break Even Sales= Fixed Cost+Profit/ contribution

38000=29000+18000/Sales-.34SP

25080SP=47000

SP=47000/25080

SP=1.87

The selling price should be $ 1.87 to earn the profit of $ 18000

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