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 $93 per unit, and variable expenses are $63 per unit. Fixed expenses are $838,200 per year. The present annual sales volume (at the $93 selling price) is 25,500 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

Menlo Company distributes a single product. The companys sales and expenses for last month follow:

	Total			Per Unit
Sales	$	640,000		$	40
Variable expenses		448,000			28
Contribution margin		192,000		$	12
Fixed expenses		154,800
Net operating income	$	37,200

Required:
1.	What is the monthly break-even point in unit sales and in dollar sales?

Break-even point in unit sales		units
Break-even point in sales dollars

2.	Without resorting to computations, what is the total contribution margin at the break-even point?

3-a.	How many units would have to be sold each month to earn a target profit of $55,200? Use the formula method.

3-b.	Verify your answer by preparing a contribution format income statement at the target sales level.

Menlo Company
Contribution Income Statement
	Total	Per unit

4.	Refer to the original data. Compute the company's margin of safety in both dollar and percentage terms. Round your percentage answer to 2 decimal places (i.e .1234 should be entered as 12.34).

	Dollars	Percentage
Margin of safety			%

5.	What is the companys CM ratio? If monthly sales increase by $75,000 and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?

CM ratio		%
Net operating income increases by