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 $92 per unit, and variable expenses are $62 per unit. Fixed expenses are $837,900 per year. The present annual sales volume (at the $92 selling price) is 25,000 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)?
1. The present yearly net operating loss is $87,900 (refer computation sheet below)
2. The present break-even point is computed as follows:
3. The company can earn a maximum net operting profit of $162,100 and at a selling price of $82.00 while the no. of units sold is 50,000 units
4. The Break-even point at the optimum level of sale is
Note: Figures in red color denotes negative figures
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