Problem 5-5 A producer of felt-tip pens has received a forecast of demand of 38,

Question

Problem 5-5 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. Find the break-even quantity if pens sell for $3 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 $18,000, assuming that estimated demand materializes? (Round your answer to 2 decimal places. Omit the "$" sign in your response.) Price eRook&Resources;

Explanation / Answer

Demand = 38000

Fixed cost = $29000

Variable cost = $0.34

A) Selling Price = $3.00

Let quantity at breakeven = P

(P x 3) = 29000 + (0.34 x P)

2.66P = 29000

P = 10902 Units

B) Desired profit = $18,000

Let quantity sold = Q

18000 = (Q x 3) - 29000 - (0.34 x Q)

18000 = 2.66Q – 29000

2.66Q = 47000

Q = 17669.17 = 17670 Units (Approx)

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