Question

Last year Minden Company introduced a new product and sold 15,000 units of it at a price of $70 per unit. The product's variable expenses are $40 per unit and its fixed expenses are $540,000 per year. Required: 1. What was this product's net operating income (loss) last year? 2. What is the product's break-even point in unit sales and dollar sales? 3. Assume the company has conducted a marketing study that estimates it can increase annual sales of this product by 5,000 units for each $2 reduction in its selling price. If the company will only consider price reductions in increments of $2 (e.g., $68, $66, etc.), what is the maximum annual profit that it can earn on this product? What sales volume and selling price per unit generate the maximum profit? 4. What would be the break-even point in unit sales and in dollar sales using the selling price that you determined in requirement 3? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 What was this product's net operating income (loss) last year? < Required 1 Required 2 >

Answer 1

15000 70 40 540000 70.00 40.00 30.00 42.857% Units Sales Selling Price Per unit Variabel Expense Per unit Fixed Expenses 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)=(540000/30) Brake Even in Dollar sales = ( Fixed Cost/ CM ratio) = ( 540,000/43.857%) 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)/(58-40) Break Even in Dollar sales =30000*58 -90000 18000 Units 1260000 Dollars 270000 dollars 45000 Units 58 Per unit 30000 Units 1740000 Dollars

Marketing Studies Increase by 5000 Units with Every $2 Reduction Selling Price , Variable ocst per unit = 40 sales Revenue = Variable cost=Contribution Net Operating Selling Price Sales Units Units * Price Units *VC Margin Fixed Cost income 70 15000 1050000 600000 450000 540000 -90000 68 20000 1360000 800000 560000 540000 20000 66 25000 1650000 1000000 650000 540000 110000 30000 1920000 1200000 720000 540000 180000 62 35000 2170000 1400000 770000 540000 230000 60 40000 2400000 1600000 800000 540000 260000 58 45000 2610000 1800000 810000 540000 270000 56 50000 2800000 2000000 800000 540000 260000 54 55000 2970000 2200000 770000 540000 230000 52 60000 3120000 2400000 720000 540000 180000 64