Question

Last year Minden Company introduced a new product and sold 25,100 units of it at a price of $92 per unit. The product's variable expenses are $62 per unit and its fixed expenses are $832,800 per year. Required: 1. What was this product's net operating income (loss) last year? 2. What is the product's break-even point in unit sales and dollar sales? 3. Assume the company has conducted a marketing study that estimates it can increase annual sales of this product by 5,000 units fo each $2 reduction in its selling price. If the company will only consider price reductions in increments of $2 (e.g., $68, $66, etc.), what is the maximum annual profit that it can earn on this product? What sales volume and selling price per unit generate the maximum profit? 4. What would be the break-even point in unit sales and in dollar sales using the selling price that you determined in requirement 3? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 What was this product's net operating income (loss) last year?

Answer 1

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Answer 1 Sales (25,100 * 92) Less: Variable Expenses (25,100 * 62) Contribution Margin Less: Fixed Expenses Net operating income (loss) last year 2,309,200 1,556,200 753,000 832,800 (79,800) Answer 2 Unit sales to breakeven = Fixed Expenses / Contribution per unit 832,800 / (92-62) 27,760 Units Breakeven (units) Breakeven point in dollar = III Breakeven (units) * Selling price per unit 27,760 * 92 $ 2,553,920 Answer 3 Unit Unit Volume (units) Fixed Expenses S.P. Unit Contribution Margin 30 V.C. 92 62 90 62 28 88 62 26 Total Contribution Margin 753,000 842,800 912,600 962,400 992,200 1,002,000 991,800 961,600 86 Net Operating Income (Loss) (79,800) 10,000 79,800 129,600 159,400 169,200 159,000 128,800 25,100 30,100 35,100 40,100 45,100 50,100 55,100 60,100 62 24 832,800 832,800 832,800 832,800 832,800 832,800 832,800 832,800 84 22 62 62 82 20 80 62 18 78 62 16

Unit Contribution margin = Unit S.P - Unit V.C. Total contribution margin = Unit Contribution margin * Volume Net operating Income = Total Contribution margin- Fixed expenses Maximum annual Profit is $169,200 Number of Units is 50,100 Answer 4 Unit sales to breakeven = Fixed Expenses / Contribution per unit 832,800 / (82-62) 41,640 Units Breakeven (units) Breakeven point in dollar = Breakeven (units) * Selling price per unit 41,640 * 82 $3,414,480