Question

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 $191,100 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 14,000 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 $75,000 per month?

Answer 1

Answer:- Given data, sales price per unit = $ 130 Variable cost per unit = $91 Contnbution margin per unit í $ 130 – $91 = $39 perc stove Axed cost = $ 194,100 Fixed cost (u Break even point in units contribution margin per unit $ 194,10o $39 = 4800 units Breakeven point in dollars = 4900 * $ 130 = $ 637,000 (2) If the of the variable expense per stove increcese as a percentage selling price, it will result in a higher Break even point the contribution margin will decrease if the expense because increase which will directly increase the breakeven pointe

(c) contribution format income statement on At L4000 sloues At 19500 Stoves (14000+25°) sales $ 1820000 (14000 x&$1300) 2047500 [17500 X (130-10%)] les variable cost (1274,000) (14000 x $91) (1592,500) (175008 91) $ 546,000 contribution margin $455,000 (194800) (191,100) ley: Fixed cost $ 263,900 $ 354,900 a Net Income Fixed cost + Target profit ( Target profit sales units a contribution margin perunit - le $191,100 + $ 75000 $39 = 6823 units Thanks.