MARKETING PRINCIPLES MKTG 305

Often a firm will calculate the break-even point for a price. That is, if we set the price at $X, then how many units will we need to sell to cover costs (that is, our break-even point). Work through the following data and questions to gain a better understanding of this approach.

QUESTIONS

  1. Start by completing the above table under the assumption that the product will be sold for $30. (It will be easiest to use Excel to complete the table.) How many units need to be sold to break-even at a product price of $30?
  2. Now recalculate the table under the assumption that the product will be sold for $15. How many units need to be sold to break-even at a product price of $15?
  3. What do you think you would set first: the sales target or the price? Why?
No. of Units Allocated Fixed Costs Variable Cost/Unit Total Production Cost Average Unit Cost Unit Price Total Sales Revenue Gross Profit
500 $10,000 $10
1,000 $10,000 $10
1,500 $10,000 $10
2,000 $10,000 $10
2,500 $10,000 $10

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