The IRU Company manufactures traditional wooden pencils. They have determined their variable cost/unit to be $0.012/pencil. Fixed costs, however, are quite high because of old processing equipment and costly packaging
The fixed costs are estimated at $140,000/month. IRU sells their pencils at a price of $13.248/gross. (There are 144 pencils in a gross.) How many grosses of pencils must be sold annually to break even?
selling price/pencil = 13.248/144 = 0.092 $/pencil
break-even point = 140,000/(0.092 - 0.012 ) = 1,750,000 pencils/month = 145,833 gross/year
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