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Break even analysis

Writers' Pleasure, Inc. produces gold-plated pen and pencil sets. It has a fixed annual cost of $50,000, and the average variable cost is $20. It expects to sell 5,000 sets next year.

a. In order to just break even, how much will the company have to charge for each set?

b. Based on its plant investment, the company requires an annual profit of $30,000. How much will it have to charge per set to obtain this profit? (Quantity sold will still be 5,000 sets.)

c. If the company wants to earn a markup of 50 percent on its variable costs, how many sets will it have to sell at the price obtained in part b?

Solution Preview

Writers' Pleasure, Inc. produces gold-plated pen and pencil sets. It has a fixed annual cost of $50,000, and the average variable cost is $20. It expects to sell 5,000 sets next year.

a. In order to just break even, how much will the company have to charge for each set?

b. Based on its plant investment, the company requires an annual profit of $30,000. How much will it have to charge per set to obtain this profit? (Quantity sold will still be 5,000 sets.)

c. If the company wants to earn a markup of 50 percent on its variable costs, how many sets will it have to sell at the price obtained in part b?

Fixed annual costs= $50,000

Average variable costs= $20

a. In order to just break even, how much will the company have to charge ...

Solution Summary

Price for breakeven and for earning a profit have been calculated.

$2.19