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, and variable costs are 37 cents per pen.
Suppose demand turns out to be 30,000 units, and the selling price is $1 per pen as originally stated in the problem. What is our projected profit or loss for the month on these pens? Should we make the pens? (Assume the fixed cost of $25,000 is an overhead allocation that does not go away even if we don't produce any pens.)