Minden Company introduced a new product last year for which it is trying to find
ID: 2424589 • 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 $01 per unit, and variable expenses are $61 per unit. expenses are $839.400 per year. The present annual sales volume (at the $91 selling price) is 25.800 units. Required: What is the present yearly net operating income or loss? What is the present break-even point in unit sales and in dollar sales?Explanation / Answer
Solution:3
Profit= Revenue - cost
where, cost = fixed expense - variable expense
Case: 1.
Revenue= $89 * 30800=$2741200
Cost = $61 * 30800 + $839400 = $2718200
Profit = $ 23000
Case:2
Revenue= 87*35800 = $3114600
Cost = 61* 35800 + 839400 = 3023200
Profit= 3114600-3023200 =91400
Case: 3
Revenue= 85*40800 =3468000
Cost = 61*40800+839400 =3328200
Profit= 139800
Case:4
Revenue =83*45800 =3801400
Cost= 61*45800 + 839400 =3633200
Profit= 168200
Case:5
Revenue= 81*50800 = 4114800
Cost = 61*50800 +839400=3938200
Profit= 176600
Case: 6
Revenue = 79* 55800= 4408200
Cost= 61*55800+839400=4243200
Profit= 165000
We can see, at case 6, the profit has declined. Therefore, Maximum profit is $176600
Selling price = $81
Units sold= 50800
Solution:4
Break even point occurs when revenue from sales equals Total cost(variable + fixed).
Let break even units is equal to X units.
X*81= X*61 +839400 = X units * 20 = 839400
X=839400/20 =41970 units.
Break even point in dollar sales = 41970 * 81= $3399570