Question

Sugment reporting- ACCT-2302 G003 8W2 Principles of 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 $138,600 per month. Required: 1. Compute the company's break-even point in unit sales and in dollar sales. Break-Even Point Number of stoves 4,200 Total sales dollars 462,000 $ 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.) Higher break-even point Lower break-even point 3. At present, the company is selling 18,000 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. Outback Outfitters Present Proposed 22,500 Stoves 18,000 Stoves Total Per unit Total Per unit Sales $ 110 Variable expenses 77 Contribution margin $ 0 33 $ 0 Fixed expenses 138,600

Answer 1

3.

Outback Outfitters
	Present		Proposed
	18000	Stoves	22500	Stoves
	Total	Per unit	Total	Per unit
Sales	1980000	110	2227500	99
Variable costs	1386000	77	1732500	77
Contribution margin	594000	33	495000	22
Fixed costs	138600		138600
Net operating income $	455400		356400

Proposed selling price per unit = $110 - (10% x $110) = $110 - $11 = $99

Note: The variable cost per unit and monthly fixed costs have been considered to remain the same under the proposed change.

4.

Number of stoves to be sold

9664

Unit sales for desired net operating income = (Fixed costs + Desired net operating income) / Contribution per unit = ($138600 + $74000)/$22 = $212600/$22 = 9663.636 = 9664 stoves