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 $90 per unit, and variable expenses are $60 per unit. Fixed expenses are $835,800 per year. The present annual sales volume (at the $90 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)? 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

'1. Net operating Income/loss) Sales Less:Variable cost Contribution Less:Fixed expenses Net operating loss $ $ $ $ 23,13,000 25700*90 15,42,000 25700*60 7,71,000 8,35,800 -64,800 $ 2. Break even sales(units) =Fixed expenses/Contribution per unit =835800/(90-60) =835800/30 =27800 units Break even sales(dollars) =Break even sales*Sale per unit =27800*90 =2502000

3. Calculation of maximum profit: Selling price per unit Variable cost per unit Contribution per unit Volume in units Total Contribution Fixed cost Net Income $ 90 $ 60 $ 30 257000 $ 7,71,000 $ 8,35,800 $ -64,800 $ 88$ 60 $ 28 30700 $ 8,59,600 $ 8,35,800 $ 23,800 $ 86 $ 60 $ 26 35700 $ 9,28,200 $ 8,35,800 $ 92.400 $ 84 $ 60 $ 24 407000 $ 9,76,800 $ 8,35,800 $ 1,41,000 $ 82 $ 60 $ 22 457000 $ 10,05,400 $ 8,35,800 $ 1,69,600 S 80s 60 S 20 50700 s 10,14,000 $8,35,800 $1,78,200 $ 78 $ 60 $ 18 55700 $ 10,02,600 $ 8,35,800 $ 1,66,800 $ 76 $ 60 $ 16 60700 $ 9,71,200 $ 8,35,800 $ 1,35,400 $ 74 $ 60 $ 14 65700 $ 9,19,800 $ 8,35,800 $ 84,000 $ 72 $ 60 $ 12 70700 $ 8,48,400 $ 8,35,800 $ 12,600 From above calculation, maximum profit is 178200 4 Calculation of Break even sales in dollars and units by using Question 3 Break even sales(units) =Fixed expenses/Contribution per unit =835800/20 =41790 units Break even sales(dollars) =Break even sales*Sale per unit =41790*80 =3343200