Detmer Holdings of AG of Zurich, Switzerland, has just introduced a new fashion

Question

Detmer Holdings of AG of Zurich, Switzerland, has just introduced a new fashion watch for which the company is trying to find an optimal selling price. Marketing studies suggest that the company can increase sales by 5,000 units for each SFr2 per unit reduction in the selling price. The company's present selling price is SFr98 per unit, and variable expenses are SFr68 per unit. Fixed expenses are SFr832,500 per year. The present annual sales volume (at the SFr98 selling price) is 25,900 units.

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


2. What is the present break-even point in units and in Swiss franc sales?
Break-even point in units=______
Break-even point in Swiss franc 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?
Maximum profit= ____
Number of units=_____
Selling price= _____


4. what would be the break-even point in units and in swiss franc sales using the selling price you determined in (3) above (i.e. the selling price at the level of maximum profits)?

Explanation / Answer

1. 25900*98 - 25900*68- 832500 = -55500 = LOSS of SFr 55500 2.Break Even Point a. In Units : n*98-n*68-832500 = 0 Therefore n= 27750 units b. In SFr : 25900*S-25900*68-832500= 0 =SFr 100.14 3. Maximum profit= 4700 Number of units=29900 Selling price= 96 4. Break-even point in units n*96-n*68-832500=0 therefore n= 29733 Break-even point in SFr 29900*n-29900*68-832500=0 Therefore, n= 95.84

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