Question

1. Bic is starting a new division that will be releasing a new pen that will be sold for $2.00 per unit. Below is the information about this new undertaking:

Selling Price: $2.00

Operating Expenses: $60,000

Lease $15,000

Depreciation $5,000

Executive Salaries $30,000

Property Taxes $10,000

Costs of goods sold = $.90 per unit

Raw Materials $.20

Labor $.30

Sales Commissions $.40

How many pens will Bic need to make just to break even?

2. Bic finds that she is drawing 25% less than her break-even point. How do you suggest that she make up the difference. I am looking for data-driven ideas to specifically answer this question to actually quantify how she makes up the 25%.

Answer 1

Break even point =fixed cost/contribution per unit

Fixed cost given=60,000

Contribution margin=selling price-veriable cost 2-0.9=1.1$

60,000$/1.1$=54,545units as break even point

2)

Bic presently drawing 25% less than BEP

=54,545units*75%

=40,910units

To markup this gap fallow as Bellow strategy

1)cost cutting and controls it results increase in contribution

2) Advertisement in new line to boost product sales

3)make quality products and gain customer loyalty

4) Gathering customer feedback

5)offer customer benifited discounts