Minden Company introduced a new product last year for which it is trying to find
ID: 2417662 • Letter: M
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 $98 per unit, and variable expenses are $68 per unit. Fixed expenses are $840,000 per year. The present annual sales volume (at the $98 selling price) is 25,100 units. Required: 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)?
Explanation / Answer
calculation of the maximum profit Units 30100 Selling Price 96 2889600 Less: Variable Expenses 68 2046800 Contribution 28 842800 Fixed Expenses 840000 net Income 2800 The coompany will earn the profit of $ 2800 Break Even Point in sales Fixed Cost/ Contribution pper unit 840000/28 30000 30000 units PV ratio = Contribution / Sales 28/96 29.16667 Break even point = Fixed Cost/ PV ratio = 840000/.2917 2879671 break Even Point = $ 2879671