Minden Company introduced a new product last year for which it is trying to find
ID: 2424494 • 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 $91 per unit, and variable expenses are $61 per unit. Fixed expenses are $839,400 per year. The present annual sales volume (at the $91 selling price) is 25,800 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)?Explanation / Answer
Answer:1 Net operating loss $65400
Answer:2 Break even Point (units) = Fixed costs / (price per unit - variable cost per unit)
=$839400/($91-$61)
=27980 units
BEP ($)=27980*$91=$2546180
Answer:3
Profit= (30 - 2x)(25,800 + 5000x) - 839400
Profit = -65400 + 98400x - 10000x^2
Taking the first derivative, P' =98400-20000x = 0
x = 4.92
Selling price 81.16
Volume 50400
Profit 176664
Answer:4 BEP (units)=839400/(81.16-61)=41636.90 units
BEP($)=41636.90*81.16=3379250.804
Particulars Amount ($) Total Revenue 2347800 Less: Total Variable cost 1573800 Contribution margin 774000 Less: Fixed cost 839400 Net Operating income -65400