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 $97 per unit, and variable expenses are $67 per unit. Fixed expenses are $837,900 per year. The present annual sales volume (at the $97 selling price) is 25,800 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)? ® Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 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 annual profit Number of units Selling price per unit $ 50,800 87 X $ 178,100 < Required 2 Required 4 >

Answer 1

3.

Units	Selling price per unit	Variable cost per unit	Contribution per unit	Total contribution	Total profit
25,800	$97	$67	$30	$774,000	-$63,900 (774,000-837,900)
30,800	95	67	28	862,400	24,500 (862,400-837,900)
35,800	93	67	26	930,800	92,900 (930,800-837,900)
40,800	91	67	24	979,200	141,300 (979,200-837,900)
45,800	89	67	22	1,007,600	169,700 (1,007,600-837,900)
50,800	87	67	20	1,016,000	178,100 (1,016,000-837,900)
55,800	85	67	18	1,004,400	166,500 (1,004,400-837,900)

Maximum annual profit = $178,100

Number of units = 50,800

Selling price per unit = $87