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