Homework #2

1.  A producer of felt-tip pens has received a forecast of demand of 30,000 pens for the coming period from the marketing department. Fixed costs of 25,000 are are allocated to the felt-tip operation, and  variable costs are 37 cents per pen.

What is the break-even quantity if pens sell for $1 each.  (Show your work both algebraically and graphically)

2.  A buyer is reviewing quotations from suppliers for a gear.  He plans either to place an order for 5,000 gears from the supplier with the least-cost quotation or to make the gear in the company's manufacturing operations.  Relevant data for this make-or-buy decision are found below. Should the company make or buy the component? (Show your work both algebraically and graphically)

Source of the Component                           Fixed Cost                             Variable Cost

Make                                                        $20,000                                      $19.89

Buy                                                                 0                                            $20.11