Question

Exercise 5-17 Break-Even and Target Profit Analysis (L05-4, LO5-5, L05-6] Outback Outfitters sells recreational equipment. One of the company's products, a small camp stove, sells for $90 per unit. Variable expenses are $63 per stove, and fixed expenses associated with the stove total $132,300 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 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 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 Required 1 Required 2 >
Please put income statement in proper format with calculations explained. Thank you!

Answer 1

Answer

--Requirements asked: requirement 1 and 3

--Requirement 1

A	Sale price	$90
B	Variable Cost	$63
C = A - B	Unit contribution margin	$27
D	Fixed Cost	$132,300
E = D/C	Break even point in units	4900	Answer
F = E x A	Break even point in $	$441,000	Answer

--Requirement 3

	Present		Proposed
	19000	stoves	23750	stoves
	Total	per unit	Total	per unit
Sale	$1,710,000	$90	$1,923,750	$81
Variable cost	$1,197,000	$63	$1,496,250	$63
Contribution margin	$513,000	$27	$427,500	$18
Fixed cost	$132,300		$132,300
Net Income or net operating income	$380,700		$295,200

>Workings and calculations

	Present		Proposed
	19000	stoves	=19000+(19000*25%)	stoves
	Total	per unit	Total	per unit
Sale	=19000*90	90	=23750*81	=90-(90*10%)
Variable cost	=19000*63	63	=23750*63	63
Contribution margin	=1710000-1197000	=90-63	=1923750-1496250	=81-63
Fixed cost	132300		132300
Net Income or net operating income	=513000-132300		=427500-132300