A producer of felt-tip pens has received a forecast of demand of 32,000 pens for

Question

A producer of felt-tip pens has received a forecast of demand of 32,000 pens for the coming month from its marketing department. Fixed costs of $36,000 per month are allocated to the felt-tip operation, and variable costs are 39 cents per pen.

A producer of felt-tip pens has received a forecast of demand of 32,000 pens for the coming month from its marketing department. Fixed costs of $36,000 per month are allocated to the felt-tip operation, and variable costs are 39 cents per pen.

Explanation / Answer

a)

Fixed cost =$36000

Variable cost = $0.39/pen

Selling Price =$3/pen

Demand= 32,000

QBEP= 36000/(3-0.39)= 13793 units

b) Specified Profit = $19000

Q= Profit + fixed cost/(R-V)

32000= 19000+36000/(R-0.39)

R=$2.11

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