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Minden Company introduced a new product last year for which it is trying to find an...

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 $93 per unit, and variable expenses are $63 per unit. Fixed expenses are $836,700 per year. The present annual sales volume (at the $93 selling price) is 25,500 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)?

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Answer #1
25,500
total per unit
1) Sales 2371500 93
less :Variable cost 1606500 63
contribution marging 765000 30
less:fixed expense 836,700
Net operating income(loss) -71,700
net operating loss -71,700
2) Break even point in units 27890
Break even point in dollars 2593770
BEP(units)                = fixed cost/contribution margin per unit
BEP(dollars)              = BEP units * selling price per unit
3) units 25,500 30,500 35,500 40,500 45,500 50,500 55,500 60,500
selling price per unit 93 91 89 87 85 83 81 79
less:Variable expense -63 -63 -63 -63 -63 -63 -63 -63
contribution per unit 30 28 26 24 22 20 18 16
total contribution margin 765000 854000 923000 972000 1001000 1010000 999000 968000
less:fixed expense -839,100 -839,100 -839,100 -839,100 -839,100 -839,100 -839,100 -839,100
net operating income(loss -74100 14900 83900 132900 161900 170900 159900 128900
Maimum profit 170900
number of units 50,500
selling price 83
4) Break even point in units 41835
Break even point in dollars 3472305
BEP(units)                = fixed cost/contribution margin per unit
BEP(dollars)              = BEP units * selling price per unit
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