A producer of felt-tip pens has received a forecast of demand
A producer of felt-tip pens has received a forecast of demand of 30,000 pens for the coming month from its marketing department.Fixed costs of $25,000 per month are allocated to the felt-tip operation
A producer of felt-tip pens has received a forecast of demand
Problem:
A producer of felt-tip pens has received a forecast of demand of 30,000 pens for the coming month from its marketing department. Fixing costs of $25,000 per month are allocate to the felt-tip operation, and variable costs are 37 cents per pen.
Problem questions:
a. What is the monthly break even in units if the price is $1.00 each? In revenue? Will the forecast sales be profitable?
b. What price must be charges to earn a monthly profit of $5,000 if the forecast is correct? Is this likely to be happen?
c. What volume is need for at a price of $1.00 to earn a monthly profit of $5,000? Is this likely to happen?
d. What volume is need for at a price of $1.00 to obtain a monthly profit of $.10 per unit? Is this likely to happen?
e. What volume is at a price of $1.00 to obtain a monthly revenue of $20,000? Is this likely to happen?
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Forecast of demand
It is a technique for estimation of probable demand for a product or services in the future. It is based on the analysis of past demand for that product or service in the present market condition. Demand forecasting must be done on a scientific basis and facts and events relating to forecasting must be in consideration.
More explanation
Therefore, in simple words, we can say that after gathering information about various aspect of the market and demand based on the past, an attempt may be made to estimate future demand. This concept is forecasting of demand.
For example, suppose we sold 200, 250, 300 units of product X in the month of January, February, and March respectively. Now we can say that there will be a demand for 250 units approx. of product X in the month of April, if the market condition remains the same.