Problem
Last year Minden Company introduced a new product and sold 16,000 units of it at a price of $82 per unit. The product's variable expenses are $52 per unit and its fixed expenses are $526,200 per year.
Task
I. What was this product's net operating income (loss) last year?
II. What is the product's break-even point in unit sales and dollar sales?
III. Assume the company has conducted a marketing study that estimates it can increase annual sales of this product by 5,000 units for each $2 reduction in its selling price. If the company will only consider price reductions in increments of $2 (e.g., $80, $78, 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?
IV. What would be the break-even point in unit sales and in dollar sales using the selling price that you determined in requirement 3?