You have a machine to produce ball point pens that have a rubber stylus on the end. The machine cost you $12,000 and is expected to be junk at the end of one year, when better machines will be available. It cost you $1.50 per pen for the materials and labor to manufacture the pen. When the stylus pens are available, you sell them to a jobber in lots of 100 pens for $300 per lot. How many lots do you have sell to break even? |
In the given statement, the machinery costs $12000 which will be scrap after 1 year. And the cost incurred for producing 1 pen is $1.50.
Now, 1 pen = $1.50
100 pen = (1.5 × 100) = $150
Selling price for 100 pens or 1 lot = $300
Profit = selling price - cost price
= 300 -150
Profit = $150
If he has to reach is break even point he have cover $12000 for the cost of the machinery. Hence he have to sell :-
= 12000 ÷ 150
= 80 lots to cover the cost of machinery
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