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 $94 per unit, and variable expenses are $64 per unit. Fixed expenses are $833,700 per year. The present annual sales volume (at the $94 selling price) is 25,300 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)? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 | Required 4 What is the present yearly net operating income or loss? Required 1 Required 2 >

Answer 1

25300 94 Units Sales Selling Price Per unit Variabel Expense Per unit Fixed Expenses 833700 94.00 64.00 30.00 32% -74700 Compute the CM ratio Selling Price Per unit Variabel Expense Per unit Contribution Margin per unit (Selling Price - Varible Cost) CM Ratio =( CM/Selling Price) Answers 1. Present Yearly Net operating income (loss) (Units * CM Per unit)-Fixed cost (25300*30)-835200 = Net operating loss 2 Compute the Break Even point Break Even in Unit Sales =( Fixed Cost / CM Per unit) Brake Even in Dollar sales =( Fixed Cost/ CM ratio) 3. If the Market Studied are Correct Maximum Profit Number of Units Selling Price 4. Break Even Point at this Price Break Even in Unit Sales =( Fixed Cost / CM Per unit) = (833700/(84-64)) Break Even in Dollar sales =41685*84 27790 Units 2612260 Dollars 172300 dollars 50300 Units 84 Per unit 41685 Units 3501540 Dollars

Selling Price Marketing Studies Increase by 5000 Units with Every $2 Reduction Selling Price sales Net Revenue = Variable costa Contribution Operating Sales Units Units * Price Units *VC Margin Fixed Cost income 25300 2378200 1619200 759000 833700 -74700 92 303002787600 1939200 8484001 833700 14700 35300 3177000 2259200 917800 833700 84100 40300 3546400 2579200 967200 833700 133500 86 453001 3895800 2899200 9966001 833700 162900 50300 4225200 3219200 1006000 833700 172300 55300 4534600 3539200 995400 833700 161700 60300 4824000 3859200 964800 833700 131100 65300 5093400 4179200 914200 833700 80500 70300 5342800 4499200 8436001 833700 9900 78