Question

Outback Outfitters sells recreational equipment. One of the company's products, a small camp stove, sells for $140 per unit. Variable expenses are $98 per stove, and fixed expenses associated with the stove total $189,000 per month. Required: 1. What is the break-even point in unit sales and in dollar sales? 2. If the variable expenses per stove increase as a percentage of the selling price, will it result in a higher or a lower break-even point? (Assume that the fixed expenses remain unchanged.) 3. At present, the company is selling 16,000 stoves per month. The sales manager is convinced that a 10% reduction in the selling price would result in a 25% increase in monthly sales of stoves. Prepare two contribution format income statements, one under present operating conditions, and one as operations would appear after the proposed changes. 4. Refer to the data in Required 3. How many stoves would have to be sold at the new selling price to attain a target profit of $72,000 per month? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 What is the break-even point in unit sales and in dollar sales? Break-even point in unit sales Break-even point in dollar sales

Answer 1

Requirement: 1 BEP Units = Fixed Expenses/Unit Contribution margin per unit Fixed Expenses Unit contribution margin Break even point in units sales (Number of stoves) 189000 42.00 4500 Stoves BEP Sales in Dollars = Fixed Expenses/Unit Contribution margin Ratio Fixed Expenses 189000 Contribution margin Ratio 30% Break even point Total sales Dollars 630000 Requirement: 2 Higher break even point

Requirement: 3 Outback Outfitters Present Proposed 16000 Stoves 20000 Stoves Total per unit Total Per unit 2240000 140 2520000 126 1568000 98 1960000 672000 42 560000 189000 189000 483000 371000 Sales Variable expenses Contribution margin Fixed expenses Net Operating income 98 Requirement: 4 Number of stoves to be sold to attain target Operating income = (Fixed expenses + Target Income) / Unit Contribution margin Fixed expenses 189000 Target Income 72000 Unit Contibution margin 28.00 Number of stoves to be sold 9321