Question

Minden Company introduced a new product last year for which it is trying to find an optimal selling price. Marketing studies suggest that the company can increase sales by 5,000 units for each $2 reduction in the selling price. The company’s present selling price is $96 per unit, and variable expenses are $66 per unit. Fixed expenses are $833,700 per year. The present annual sales volume (at the $96 selling price) is 25,900 units. Required: 1. What is the present yearly net operating income or loss? 2. What is the present break-even point in unit sales and in dollar sales? (Do not round intermediate calculations.) 3. Assuming that the marketing studies are correct, what is the maximum annual profit that the company can earn? At how many units and at what selling price per unit would the company generate this profit?

What is the present break-even point in unit sales and in dollar sales? (Do not round intermediate calculations.)

What is the present break-even point in unit sales and in dollar sales? (Do not round intermediate calculations.)

Break-even point in units is 27790

Break even point in dollar sales is 2667840

3. Assuming that the marketing studies are correct, what is the maximum annual profit that the company can earn? At how many units and at what selling price per unit would the company generate this profit?

a) maxium Profit

B/ number of units

c? selling price

Answer 1

			Current	Proposed
		Selling Price	96.00	94.00
		Variable Cost	66.00	66.00
		Sales Volume	25900	30900
		Fixed Costs	833700	833700
	1		Current
		Selling Price	24,86,400	(96*25900)
		Less: Variable Cost	17,09,400	(66*25900)
		Contribution Margin	7,77,000
		Less:Fixed Costs	833700
		Net Operating Income	-56,700
	2	BEP:
		In Units:
		Fixed Costs	833700
		Contribution Margin	30.00
		BEP in Units	27790
		BEP:
		In Dollars:
		Fixed Costs	833700
		Contribution Margin Ratio	31.25%	(30/96)
		BEP in Units	2667840
	3		Current
		Selling Price	29,04,600	(94*30900)
		Less: Variable Cost	20,39,400	(66*30900)
		Contribution Margin	8,65,200
		Less:Fixed Costs	833700
		Net Operating Income	31,500
	A	31,500	Max Profit
	B	30900	Units
	C	94	SP