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 >

Answer 1

Please give positive ratings so I can keep answering. It would help me a lot. Please comment if you have any query. Thanks!

Outback outfitters
Answer 1
	Amount $	Note
Sales Price	90.00	A
Variable Expenses	63.00	B
Contribution margin	27.00	C=A-B
Fixed costs	132,300.00	D
Breakeven (Units)	4,900.00	E=D/C
Breakeven ($)	441,000.00	F=E*A
Answer 2
If variable expense increase then contribution will decrease. It will increase breakeven point.
Answer 3			Note
Sales Price	90.00		See A
Decrease by	10%		G
Decrease by	9.00		H=A*G
Revised Sales Price	81.00		I=A-H
Number of units sold	19,000.00		J
Increase by	25%		K
Number of units increased	4,750.00		L=J*K
Revised units sold	23,750.00		M=J+L
Income Statement	Revised	Proposed	Note
Sales Price	90.00	81.00	See A, I
Variable Expenses	63.00	63.00
Contribution margin	27.00	18.00	N
Units sold	19,000.00	23,750.00	See J, M
Contribution amount	513,000.00	427,500.00	O
Fixed costs	132,300.00	132,300.00	See D
Operating Profit	380,700.00	295,200.00	P=O-D
Decrease by		85,500.00
Operating Profit will decrease by $ 85,500 so sell price should not be reduced.
Answer 4	Amount $
Fixed costs	132,300.00		See D
Add: Target Profit	72,000.00		Q
Target Contribution	204,300.00		R=D+Q
Contribution margin	18.00		See N
Units to be sold	11,350.00		S=R/N