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?

Question

Colt

Business

4 May, 22:23

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?

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Answers (1)

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Monster · Answer 1

The selling price must be $1.56 per pen

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