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 $99 per unit, and variable expenses are $69 per unit. Fixed expenses are $837,600 per year. The present annual sales volume (at the $99 selling price) is 25,200 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?

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?

4. What would be the break-even point in unit sales and in dollar sales using the selling price you determined in (3) above (e.g., the selling price at the level of maximum profits)?

Net operating loss

$81,600

Break-even point in units
Break-even point in dollar sales	$2,764,080

Maximum annual profit Number of units Selling price per unit

• Break-even point in units 41,880 Break-even point in dollar sales $3,727,320

Answer 1