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 companys present selling price is $70 per unit, and variable expenses are $40 per unit. Fixed expenses are $540,000 per year. The present annual sales volume (at the $70 selling price) is 15,000 units.

1. What is the present yearly net operating income or loss?

2. What is the present break-even point in unite 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?

Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $20 per unit. Variable expenses are $8 per unit, and fixed expenses total $180,000 per year.

1. What is the product's contribution margin ratio?

CM ratio %?

2. Use the contribution margin ratio to determine the break-even point in dollar sales.

Break-even point in sales dollars?

3. Due to an increase in demand, the company estimates that sales will increase by $75,000 during the next year. By how much should net operating income increase (or net loss decrease) assuming that fixed expenses do not change?

Net operating income ______?______ by _____?______

4. Assume that the operating results for last year were:

Sales	$	400,000
Variable expenses		160,000
Contribution margin		240,000
Fixed expenses		180,000
Net operating income	$	60,000

a. Compute the degree of operating leverage at the current level of sales.

Degree of operating leverage?

b. The president expects sales to increase by 20% next year. By what percentage should net operating income increase?

Net operating income increase by %?

5. Refer to the original data. Assume that the company sold 18,000 units last year. The sales manager is convinced that a 10% reduction in the selling price, combined with a $30,000 increase in advertising, would increase annual unit sales by one-third.

a. Prepare two contribution format income statements, one showing the results of last year/s operations and one showing the results of operations if these changes are made. (Do not round intermediate calculations. Round your "Per unit" answers to 2 decimal places.)

b. Would you recommend that the company do as the sales manager suggests?

No or Yes?

6. Refer to the original data. Assume again that the company sold 18,000 units last year. The president does not want to change the selling price. Instead, he wants to increase the sales commission by $1 per unit. He thinks that this move, combined with some increase in advertising, would increase annual sales by 25%. By how much could advertising be increased with profits remaining unchanged? do not prepare an income statement; use the incremental analysis approach.

The amount by which advertising can be increased is _____?______

The Fashion Shoe Company operates a chain of womens shoe shops that carry many styles of shoes that are all sold at the same price. Sales personnel in the shops are paid a substantial commission on each pair of shoes sold (in addition to a small base salary) in order to encourage them to be aggressive in their sales efforts.

The following worksheet contains cost and revenue data for Shop 48 and is typical of the companys many outlets:

	Per Pair of Shoes
Selling price	$	30.00
Variable expenses:
Invoice cost	$	13.50
Sales commission		4.50
Total variable expenses	$	18.00
		Annual
Fixed expenses:
Advertising	$	30,000
Rent		20,000
Salaries		100,000
Total fixed expenses	$	150,000

1. Calculate the annual break-even point in unit sales and in dollar sales for Shop 48.

Break-even point in unit sales ________________ pairs?

Break-even point in dollar sales _______________?

2. Prepare a CVP graph showing cost and revenue data for Shop 48 from zero shoes up to 17,000 pairs of shoes sold each year. Clearly indicate the break-even point on the graph.

3. If 12,000 pairs of shoes are sold in a year, what would be Shop 48/s net operating income or loss?

4. The company is considering paying the store manager of Shop 48 an incentive commission of 75 cents per pair of shoes (in addition to the salesperson's commission). If this change is made, what will be the new break-even point in unit sales and in dollar sales? ( Do not round intermediate calculations. Round your final answers to the nearest whole number.)

New break-even point in unit sales ______?_______ pairs

New break-even point in dollar sales ______?_______

5. Refer to the original date. As an alternative to (4) above, the company is considering paying the store manager 50 cents commission on each pair of shoes sold in excess of the break-even point. If this change is made, what will be the shop's net operating income or loss if 15,000 pairs of shoes are sold? (Do not round intermediate calculations.)

6. Refer to the original data. The company is considering eliminating sales commissions entirely in its shops and increasing fixed salaries by $31,500 annually.

a. If this change is made, what will be the new break-even point in unit sales and in dollar sales for Shop 48? (Do not round intermediate calculations.?

New break-even point in unit sales ______?______ pairs

New break-even point in dollar sales ____________