Problem 5-5 A producer of felt-tip pens has received a forecast of demand of 33,

Question

Problem 5-5

A producer of felt-tip pens has received a forecast of demand of 33,000 pens for the coming month from its marketing department. Fixed costs of $27,000 per month are allocated to the felt-tip operation, and variable costs are 25 cents per pen.

A producer of felt-tip pens has received a forecast of demand of 33,000 pens for the coming month from its marketing department. Fixed costs of $27,000 per month are allocated to the felt-tip operation, and variable costs are 25 cents per pen.

Explanation / Answer

break even point= fixed cost/ selling price - variable cost,

here fixed cost is $27,000, selling price is $2, and variable cost is 25 cents.

BEP= 27,000/2- 0.25= 15,428 units

b. the required profit is= $11,000

then the price of the product shuold be= desired profit+ fixed cost/ contribution

but here the quantity is same and looking for 11000 profit. then they should be sell it

= 11000/15428=0.712

the selling price should be$2.7 per pen

=

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