Minden Company introduced a new product last year for which it is trying to find
ID: 2459984 • 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 $833,100 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
1. Net operating loss =$59100
2. Break even point = Fixed cost/ Contibution per unit = 27770 units
Dollar sales = 2527070
3. 50800 units @ selling price of $81 per unit
Profit generated= $182900
4. Break even point:
Sales unit =41655
Sales volume =3374055
Selling price 91 Variable expense 61 Contribution 30 Sales volume 25800 Contribution 774000 Fixed expense 833100 Profit -59100