Minden Company introduced a new product last year for which it is trying to find
ID: 2549339 • 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 $96 per unit, and variable expenses are $66 per unit. Fixed expenses are $839,400 per year. The present annual sales volume (at the $96 selling price) is 25,200 units. 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? Maximum profit Number of units Selling price $ 2,838,800 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)? Break-even point in units Break-even point in dollar salesExplanation / Answer
3) Calculation of Maximum annual Profit :-
Maximum Annual Profit = $164600
No. of units = 50200 units
Selling Price per unit = $86 per unit
Total Selling Price = 50200 * $86 = $4317200
4) Break even point in units :-
= Fixed Cost / Contribution Per unit
= $839400 / $20
= $41970 units
Break even Point in Doller :-
= Fixed Cost / Contribution Margin in %
= $839400 / 23.256%
= $3609391
Contribution Margin in % = Contribution per unit / Sale Price per unit
= $20 / $86
= 0.23256 or 23.256%
No. of Units Selling Price Per unit Variable Exp. Per unit CM per unit Total CM Fixed Exp. Net Operating Income/(Loss) a b c d = b-c e = a*d f g = e-f 25200 $96 $66 $30 $756000 $839400 ($83400) 30200 $94 $66 $28 $845600 $839400 $6200 35200 $92 $66 $26 $915200 $839400 $75800 40200 $90 $66 $24 $964800 $839400 $125400 45200 $88 $66 $22 $994400 $839400 $155000 50200 $86 $66 $20 $1004000 $839400 $164600 55200 $84 $66 $18 $993600 $839400 $154200