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 $70 per unit, and variable expenses are $40 per unit. Fixed expenses are $540,000 per year. The present annual sales volume (at the $70 selling price) is 15,000 units.

1a. 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

1b.  What would be the break-even point in unit sales and in dollar sales using the selling price you determined in (1a) above (e.g., the selling price at the level of maximum profits)?

Break-even Point in Units
Break Even Point in Dollar Sales

Answer 1

70.00 40.00 30.00 43% -90000 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 (15000*30-540000 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) = (540000)/(70-40) Break Even in Dollar sales =30000*58 18000 Units 1260000 Dollars 270000 dollars 45000 Units 58 Per unit 30000 Units 1740000 Dollars

Selling Price 68 Marketing Studies Increase by 5000 Units with Every $2 Reduction Selling Price sales Revenue = Variable costs Contribution Net Operating Sales Units Units *Price Units *VC Margin Fixed Cost income 70 15000 1050000 600000 450000 540000 -90000 20000 1360000 800000 560000 540000 20000 66 25000 1650000 1000000 650000 540000 110000 64 30000 1920000 1200000 720000 540000 180000 62 35000 2170000 1400000 770000 540000 230000 60 40000 2400000 1600000 800000 540000 260000 45000 2610000 1800000 810000 540000 270000 56 50000 2800000 2000000 800000 540000 260000 54 55000 2970000 2200000 770000 540000 230000 600001 3120000 2400000 720000 540000 180000 58 527