Demer holdings AG of Zurich, Switzerland has just introduced a new
fashion watch for which the company is trying to find an optional selling
price.
P3-25 Break-Even Analysis: Pricing ( LO 3-1,
LO 3-4, LO 3-6)
P3-25 Demer holdings AG of Zurich, Switzerland has just introduced a new
fashion watch for which the company is trying to find an optional selling
price. Marketing studies suggest that the company can increase sales by 5,000
units for each SFr 2 per unit reduction in the selling price. (SFr2 denotes 2
Swiss Francs). The company ‘s present selling price is SFr90 per unit, and
variable expenses are SFr60 per unit. Fixed expenses are SFr840,000 per year.
The present annual sales volume (at the SFr90 selling price) is 25,000 units.
Required:
1. What is present yearly net operating income or loss?
2. What is the present Break – Even –Point in units and in Swiss Francs
sales?
3. Assuming that the marketing studies are correct, what is the maximum
profit that the company can earn yearly? At how many units, and at what selling
price per unit would the company generate this profit?
4. What would be the Break-Even-Point in units and in Swiss Francs sales
using the selling price you determined in (3) above (i.e., the selling price at
the level of maximum profits) ?
Why is this Break-Even-Point different from the Break-Event-Point you
computed in (2) above?
TUTORIAL
PREVIEW
1. What is present yearly net operating income or loss?
|
SFr
|
|
|
Sales (25,000 units × SFr 90 per unit)
|
2,250,000
|
|
Variable expenses (25,000 units × SFr
60 per unit)
|
1,500,000
|
|
Contribution margin
|
750,000
|
file name: P3-25 Demer holdings.xls File type: .xls PRICE: $10
