Question

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ers 1,2,3,50 Seved Help Save & Exit Outback Outfitters sells recreational equipment. One of the company's products, a small camp stove, sells for $130 per unit Variable expenses are $91 per stove, and fixed expenses associated with the stove total $183,300 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 11,000 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 $70,000 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 Roured Required 2 >

Answer 1

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Outback Outfitters
Answer 1	Amount $	Note
Sell price	130.00	E
Les: Variable expenses	91.00
Contribution per unit	39.00	A
Fixed expense	183,300.00	B
Break even units	4,700.00	C=B/A
Break even $	611,000.00	D=C*E
Answer 2
If variable cost increase in same % as sales then CVP ratio or contribution per unit will also increase in same % as sales so break even will decrease.
So lower breakeven point.
Answer 3
Current Sell price	130.00
Reduction by 10%	13.00
Revised Sell price	117.00
Current Sales units	11,000.00
Increase by 25%	2,750.00
Revised Sales units	13,750.00
Income statement	Present	Proposed
	11000 Stoves	13750 Stoves	Note
	Total	Per Unit	Total	Per Unit
Sales	1,430,000.00	130.00	1,608,750.00	117.00
Les: Variable expenses	1,001,000.00	91.00	1,251,250.00	91.00
Contribution per unit	429,000.00	39.00	357,500.00	26.00	F
Fixed expense	183,300.00		183,300.00
Operating Income	245,700.00		174,200.00
Decrease by			71,500.00
Answer 4		Note
Target Profit	70,000.00
Add: Fixed expense	183,300.00
Target Contribution	253,300.00	G
Contribution per unit	26.00	F
Units to be sold	9,742.31	H=G/F