Minden Company Introduced a new product last year tor which it is trying to tind

Question

Minden Company Introduced a new product last year tor which it is trying to tind 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 $834,300 per year. The present annual sales volume (at the $99 selling price) is 25,300 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? Break-even point in units Break-even point in dollar sales

Explanation / Answer

1.

operating loss with @ $99 is $75300

2.

Break even point:

northwood company question:

1a.

CM ration: 477000/1590000

= 30%

break even unit : (378000)/.30

= 1260000/30

= 42000

1b.

operating leverage :

477000/99000 = 4.82

3.

cm ratio is 25%

contribution required for same profit of $99000

sale required = (99000+378000)/.25

= $1908000

unit to be sold : 1908000/30

= 63600

4.

for cm% 30

variable cost after increase in labour cost by $1.5

new variable cost per unit is 22.5

As required CM % is 30 then the Varible cost ratio will be 70%

so if the variable cost is 22.5 then the sale price will be 22.5/.7 = 32.14

selling price per ball should be $32.14

Particular Amount sale 2504700 variable cost 1745700 contribution 759000 fixed cost 834300 Ebit -75300

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