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 $98 per unit, and variable expenses are $68 per unit. Fixed expenses are $834,600 per year. The present annual sales volume (at the $98 selling price) is 26,000 units.
Required:
1. What is the present yearly net operating income or loss?
2. What is the present break-even point in unit sales and in dollar sales?
3. Assuming that the marketing studies are correct, what is the maximum annual profit that the company can earn? At how many units and at what selling price per unit would the company generate this profit?
4. What would be the break-even point in unit sales and in dollar sales using the selling price you determined in (3) above (e.g., the selling price at the level of maximum profits)?
1.
Operating profit/loss = (Contribution margin x No. of units) – Fixed cost
= ($ 98 - $ 68) x 26,000 - $ 834,600
= $ 30 x 26,000 - $ 834,600 = $ 780,000 - $ 834,600
= - $ 54,600
Present yearly operating loss is $ 54,600.
2.
Breakeven point in units = Fixed cost/Contribution margin per unit
= $ 834,600/$ 30 = 27,820
Breakeven point in dollars = Breakeven point in units x sales price
= 27,820 x $ 98 = $ 2,726,360
3.
Revised selling price = $ 98 - $ 2 = $ 96
Contribution margin = $ 96 - $ 68 = $ 28
Budgeted sales = 26,000 + 5,000 = 32,000
Revised annual profit = $ 28 x 32,000 - $ 834,600
= $ 896,000 - $ 834,600
= $ 61,400
The company will generate profit of $ 61,400 on selling 32,000 units and at sales price of $ 96 per unit.
4.
Breakeven point in units = Fixed cost/Contribution margin per unit
= $ 834,600/$ 28 = 29,807.14286 or 29,807 units
Breakeven point in dollars = Breakeven point in units x sales price
= 29,807.14286 x $ 96 = $ 2,861,485.7143 or $ 2,861,485.71
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 $94 per unit, and variable expenses are $64 per unit. Fixed expenses are $833,700 per year. The present annual sales volume (at the $94 selling price) is 25,300 units. Required: 1. What is the present...
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...
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 $99 per unit, and variable expenses are $69 per unit.
Fixed expenses are $838,200 per year. The present annual sales
volume (at the $99 selling price) is 25,100 units.
Required:
1. What is the present...
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 $96 per unit, and variable expenses are $66 per unit. Fixed expenses are $837,000 per year. The present annual sales volume (at the $96 selling price) is 25,100 units. Required: 1. What is the present...
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 $100 per unit, and variable expenses are $70 per unit. Fixed expenses are $831,600 per year. The present annual sales volume (at the $100 selling price) is 25,600 units. Required: 1. What is the present...
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 $92 per unit, and variable expenses are $62 per unit. Fixed expenses are $834,000 per year. The present annual sales volume (at the $92 selling price) is 25,600 units. Required: 1. What is the present...
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 $838,800 per year. The present annual sales volume (at the $97 selling price) is 25,900 units. Required: 1. What is the present...
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 $95 per unit, and variable expenses are $65 per unit. Fixed expenses are $837,600 per year. The present annual sales volume (at the $95 selling price) is 25,900 units. Required: 1. What is the present...
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 $840,000 per year. The present annual sales volume (at the $93 selling price) is 25,400 units. Required: 1. What is the present...
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 $832,800 per year. The present annual sales volume (at the $97 selling price) is 25,100 units. Required: 1. What is the present...