A pen manufacturer makes luxury pens. The pen case costs $7.26 each, the ink holder costs $1.26 each, the spring costs $.07 each and the velvet pen case costs $0.91 each. The plant has general and administrative costs of $55 000 and fixed selling expenses of $37 500. The pens sell of $39.95 each. Plant capacity is 4 000 pens per period. At what percentage of capacity is the break-even point?

Question

Quizplus · Accepted Answer

The break-even point is the point at which the total revenue equals the total cost. The total cost is the sum of the variable cost and the fixed cost. The variable cost is the cost that changes with the level of production, and the fixed cost is the cost that does not change with the level of production.In this case, the variable cost is the cost of the pen case, the ink holder, the spring, and the velvet pen case. The fixed cost is the general and administrative costs and the fixed selling expenses.The total revenue is the price of the pen multiplied by the number of pens sold. The break-even point is the point at which the total revenue equals the total cost.To calculate the break-even point, we can use the following formula:Break-even point = Fixed cost / (Price per unit - Variable cost per unit)In this case, the fixed cost is $55,000 + $37,500 = $92,500. The price per unit is $39.95. The variable cost per unit is $7.26 + $1.26 + $0.07 + $0.91 = $9.50.Substituting these values into the formula, we get:Break-even point = $92,500 / ($39.95 - $9.50) = 3,083 pensThe plant capacity is 4,000 pens per period. Therefore, the break-even point is 3,083 / 4,000 * 100 = 75.95% of capacity.

A Pen Manufacturer Makes Luxury Pens