Smith and Company manufactures pens in a variety of ink colors. Each pen sells for $0.75. While the colors vary, the costs of making a pen are pretty constant, as suggested by the table below.

REQUIRED:

a. Using the above data, derive the cost formula for Smith and Company. Be careful here to derive the formula for one pen, not 10,000.

b. Do you question the pattern of any of the costs? Specifically, does anything look variable by number of sets that does not quite seem to make sense? Why?

c. What is Smith and Company’s breakeven volume in number of pens?

d. What is Smith and Company’s breakeven volume in dollar sales of pens?

Transcribed Image Text:

Smith and Company Cost for 10,000 Pens Cost for 50,000 Pens Variability, 10,000- Fixed Portion for 50,000 50,000 Pens Resource Pens Labor $1,000 $5,000 Materials $2,500 $12,500 Packaging $500 $2,500 Office workers $2,500 $2,500 Telephones $200 $200 Telephone/fax service charge $250 $500 Desks $1,000 $1,000 Rent on building $2,500 $2,500 Management costs $4,000 $4,000 Totals Cost Formula $- per Pen Plus