problem # 4-19

dem les commission by S4 per unit He think thi case in tising, would increase annual unit sales by 50%. By how much could advertising be increased with ofits remaining unchanged? Do not prepare an inn a me the incremental analysis approach. BLEM +-19 Break-Even Analysis; Pricing (LOI, LO3, L05) 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 reduc- tion in the selling price. The company's 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. Required: 1. What is the present yearly operating income or loss? 2. What is the present break-even point in unit sales and in dollar sales? Assuming that the marketing studies are correct, what is the maximum annual profit that the com- pany can earn? At how many units and at what selling price per unit would the company generate this profit? What would be the break-even point in unit sales and in dollar sales using the selling price you de- termined in (3) above (e.g., the selling price at the level of maximum profits)? Why is this break- even point different from the break-even point you computed in (2) above? PROBLEM 4-20 Sales Mix; Multi-Product Break-Even Analysis [109] Smithen Company, a wholesale distributor, has been operating for only a few months. The company sells three products--sinks, mirrors, and vanities. Budgeted sales by product and in total for the coming month are shown below based on planned unit sales as follows: Units Percentage Sinks........... Mirrors... Vanities........ . Total ........... 1.000 500 500 50% 259 10091