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 $94 per unit, and variable expenses are $64 per unit. Fixed expenses are $830,400 per year. The present annual sales volume (at the $94 selling price) is 25,200 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? Break-even point in units Break-even point 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? Maximum profit Number of units Selling price 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 sales

Please help! And please explain how to get answers so I can learn how to do it on future problems. Thanks in advance! I'll be sure to give a thumbs up.

Answer 1

1)	Present net annual income or loss
	Sales Revenue	$         23,68,800
	(25200*$94)
	Less:
	Variable Cost	$         16,12,800
	(25200*$64)
	Contribution	$            7,56,000
	Less:
	Fixed Expenses	$            8,30,400
	Loss	$               74,400
2)	Present Break-Even Point
	Present Contribution Margin Per unit = $756000/25200 units
	=$30 per unit
	Break-even Point In-Unit = Fixed Cost/ Contribution Margin Per Unit
	=$830400/30
	=27680 units
	In dollares = 27680 units *$94
	=$2601920
3)	Sales Price	94	92	90	88	86	84	82
	Units	25200	30200	35200	40200	45200	50200	55200
	Sales Revenue	$         23,68,800	$   27,78,400	$   31,68,000	$   35,37,600	$       38,87,200	$   42,16,800	$   45,26,400
	Less:
	Variable Cost	$         16,12,800	$   19,32,800	$   22,52,800	$   25,72,800	$       28,92,800	$   32,12,800	$   35,32,800
	Contribution	$            7,56,000	$     8,45,600	$     9,15,200	$     9,64,800	$         9,94,400	$   10,04,000	$     9,93,600
	Less:
	Fixed Expenses	$            8,30,400	$     8,30,400	$     8,30,400	$     8,30,400	$         8,30,400	$     8,30,400	$     8,30,400
	Income (Loss)	$              -74,400	$         15,200	$         84,800	$     1,34,400	$         1,64,000	$     1,73,600	$     1,63,200
	Maximum Profit	$            1,73,600
	Number of units	50200
	Selling Price	$                        84
4)	Break-Even Points
	Present Contribution Margin Per unit = $1004000/50200 units
	=$20 per unit
	Break-even Point In-Unit = Fixed Cost/ Contribution Margin Per Unit
	=$830400/20
	=41520 units
	In dollars = 41520 units *$84 per unit
	$               34,87,680