The vice-president of marketing, Carol Chow, thinks that her firm can increase sales by 15,000 units for each $5-per-unit reduction in its selling price. The company's current selling price is $90 per unit and variable expenses are $60 per unit. Fixed expenses are $810,000 per year. The current sales volume is 40,000 units.
Instructions
Answer the following questions:
(a) What is the current yearly operating income?
(b) What is the current break-even point in units and in dollar sales?
(c) Assuming that Carol is correct, what is the maximum profit that the firm could generate yearly? At how many units and at what selling price(s) per unit would this profit be generated? Assume that capacity is not a problem and total fixed expenses will be the same regardless of volume.
(d) What would be the break-even point(s) in units and in dollar sales using the selling price(s) you have determined?