Question

A felt-tip pen manufacturer is forecasted to sell 31500 pens next month. Their fixed costs are $22000 per month and variable costs are $0.39 per pen.Management wants to generate $14750 in profits next month. Assuming that the demand is met, what must the selling price be?

Answer 1

$1.56.

Step-by-step explanation:

The net profit of an organization is the difference between the sales and all elements of costs.

These cost elements are broadly classified into fixed and variable cost. While the fixed cost like the name suggests is fixed over a given range of activities level, the sales and variable cost are determined by the units sold and produced.

Let the selling price per unit be x

31500x - 22000 - 0.39(31500) = 14750

31500x = 49035

x = 49035/31500

x = 1.56

The selling price must be $1.56.

Answer 2

The selling price must be $1.56 per pen

Step-by-step explanation:

The number of units must be sold to meet the target profit figure are calculated by using following formula:

The number of units must be sold = (Total fixed cost + Targeted profit) / Contribution margin per unit.

Assuming that the demand is met, the number of units must be sold will be 31,500 pens. Total fixed costs are $22,000. Targeted profit is $14,750

Contribution margin per unit = (Total fixed cost + Targeted profit)/The number of units must be sold = ($22,000 + $14,750)/31,500 = $1.17

Contribution margin per pen = Selling price per pen - Variable costs per pen

Selling price per pen = Contribution margin per pen + Variable costs per pen = $1.17 + $0.39 = $1.56