Minden Company introduced a new product last year for which it is trying to find
ID: 2570946 • 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 $99 per unit, and variable expenses are $69 per unit. Fixed expenses are $831,900 per year. The present annual sales volume (at the $99 selling price) is 25,200 units.
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?
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 $99 per unit, and variable expenses are $69 per unit. Fixed expenses are $831,900 per year. The present annual sales volume (at the $99 selling price) is 25,200 units.
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?
Explanation / Answer
1) The present yearly net operating income or loss = - $ 75,900
Note :
Note : The Amount of sales and variable cost is caluclated by multiplying the per unit cost by 25,200 Units
2. The present break-even point in unit sales = Fixed Cost / Contribution Margin Per Unit
= $ 831,900 / $ 30
= 27,730 Units
The present break-even point in in dollar sales= Fixed Cost / Contribution Margin Ratio
= $ 831,900 / [ $ 30 / $ 99*100]
= $ 2,745,270
25,200 Units Per Unit Volume Sales $ 2,494,800 99 Variable expenses 1,738,800 69 Contribution margin 756,000 30 Fixed expenses 831,900 Net operating income $ -75,900