Question

Outback Outfitters sells recreational equipment. One of the company's products, a small camp stove, sells for $110 per unit. Variable expenses are $77 per stove, and fixed expenses associated with the stove total $161,700 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 19,000 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 At present, the company is selling 19,000 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. Contribution Income Statement Outback Outfitters Present 19,000 Stoves Total Per unit Proposed Stoves Total Per unit 0 $ 0 0 $

Answer 1

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Naming convention is not available, can be slightly different: Solution: Outback Outfitters Contribution Income Statement Present 19000 Stoves Total Per unit Sales (Price x unit sold) 2090000 110 Variable Expenses 1463000 77 Contribution Margin (Sales - VC) 627000 33 Fixed Expenses 161700 Net Income 465300 Proposed 23750 Stoves (19000*125%) Total Per unit 2351250 99 (110*90%) 1828750 522500 161700 360800