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 $25,000 per month are allocated to the felt- tip operation, and variable costs are 37 cents per pen.
Find the break-even quantity if pens sell 1$ each.

Answer 1

Answer: Break even Point = 39683 units  

Explanation:

Break even Point

break even point units is the number of units a firm needs to sell in order to cover the total cost  of production. it is the point where the company makes no profit or loss. Break even point units is calculated by dividing fixed cost with contribution margin  which is the Sell price minus Variable cost  

Fixed costs = $25000

selling Price = $1

variable costs = 0.37 cents

break even point units = Fixed Costs/ (selling price - variable costs)

Break even Point Units = 25000/ (1 - 0.37)

Break even Point units = 39682.53968 =  39683 (rounded off)

The demand forecast is 30000 units while the break even point units is 39683 units. The company (Producer of felt tip pens) will not make profit from the expected demand simply because  the amount of units required to cover total production costs (to break even) is higher than the demand expected.  The company will not be able to sell enough units