Question

Please work out the problem so that I will understand it and large enough so that I can read it. Thanks.

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 $92 per unit, and variable expenses are $62 per unit. Fixed expenses are $839,400 per year. The present annual sales volume (at the $92 selling price) is 25,700 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)?

Required 1

What is the present yearly net operating income or loss?

Required 2

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

	Break-even point in units              Break-even point in dollar sales

Required 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?

	Maximum profit Number of units Selling price

Required 4

What would be the break-even point in unit sales and in dollar sales using the selling price you determined in Required (3) (e.g., the selling price at the level of maximum profits)? (Do not round intermediate calculations.)

	Break-even point in units P Break-even point in dollar sales

Answer 1

Anguer calculation of net opeating Tncome Revenue (s00un x ¢92) - 2,364,400 les-Vaonable Expenses (Rr700 x $62) 000 Contabution margin - ¢ (839,u00) Mey: FIxed Expenses C$66,400) Net per os selling price per unrt- vasji qble expene Per unt Contmbutionper unzt- $92-$6L $30 FIxed co Brealk even In units Contibution pan qnit 34400 $30 Breal cwen in dollas - Breqkeven umts x selling pnce per unl 2 o uni x $92 -54,160

Calculaho ot maximu annual pofit: - Number 30-100 35t00 46700 of anuts a atsh selting pce Per unit 8 6 88 62 Vaniable 61 6 2 62 price per unit 22 contabuti 24 26 30 per unit 916800 00o0 lol4,c00 l00b00 924,200 o09%58 Tote Cbntbution As Axed cost remain consteint, the maximum contbution margin occus whn he company sells sotoo units with selling price oft $eL 839400 At ha pnue, the maximum annual profit = lptupoo - 414boo K= 4 839u00 Break even point at selling pnce of 48 = మి 419 uhuls x $e2 Break even polint n dollay 3441,Suo a Thanes