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 $201.600 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 20,000 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 $79,000 per month? Required 1 his question by entering your answers in the tabs below. Requiged 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 pont in d a ss 672 000 Required 2 >

Answer 1

Selling price per vnit 140 -Variable price a u Contribution Maagin $ 42. 98 tex.ed cost $2016 00 satio = 2 x 100 = Break even boint in Vrels - 42 x 100 = 207. G Tho & Fexed Cost. in Vrets Contribution pes Vnit 2016 $42 - 4800 Units ak even point in dollar sales - $201600 307 3$672000 Nowe, the variable expenses increased as a percentage of the selling price = $ 98x140 y = $13720 per Unit Selling price 140.00 per Unit At 137.20 U Contribution margin $2.8 per unit B.E.P in Units $20.600 $2.80 - 72000 Vnits s Selling boricu le

p/vratio = 28 X100 = 2% BBP in dollar sales. 20160 $100 80000 if decreased the BEP will be highes. to the sale price out back Outfitters Contribution Income ont present Proposed 20000 Stores 25000 Stoves total pero vnit total per Unit Sales brezent - 20,001 X140] 2800000 140.00 3158000 126.00 probosed - 25000 x126 o variable cost present -20,000x987 1960000 98.00 2450000 98.00 proposed - 25000 x 98 Contribution Margin 840,000 42.00 700,000 28.00 - Fixed cost 2016 – 201600 - Profit 638400 498400

Selling price 126.00 to variable cost 98.00 Carlsibution Margin$28.00 Required sales Fixed Cost & Passgeted profit. Contributes per Unit - $(201600 479000) $28 $280600 e 10021 vnits $28 (Apprax) 00