Question

Exercise 5-17 Break-Even and Target Profit Analysis (LO5-4, LO5-5, LO5-6) Outback Outfitters sells recreational equipment. One of the company's products, a small camp stove, sells for $140 per unit. Variable expenses are $98 per stove, and fixed expenses associated with the stove total $205.800 per month 03:59:22 Book 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 11,000 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 $73,000 per month? Pint 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 dolar sales Required 2 >

Answer 1

Answer with working is given below

1 Break even point in unit sales Break even point in dollar sales 4,900 $686,000 Units Fixed Cost Contribution per unit $205,800 $42.00 4,900 Break even point in dollar sales $686,000 $ Sales Fixed Cost Contribution Margin ratio $205,800 30% $140 Selling price Variable cost Contribution margin Contribution margin % $98 $42 30.00% 2 Higher Break even point Reason Contribution margin will reduce and Break even point will be higher Sales Variable cost Contribution Fixed Cost Net Income Contribution Format Income Statement Present Proposed 11,000 stoves 13,750 stoves Total per unit Total per unit $1,540,000 $140 $1,732,500 $126 $1,078,000 $98 $1,347,500 $98 $462,000 $42 $385,000 $205,800 $205,800 $256,200 $179,200 $28 4 Units needed to achieve target the target profit 9,957 Rounded off Fixed cost Target profit Total Target $205,800 $73,000 $278,800 Units Total Target Revised Contribution per unit $278,800 $28.00 9,957 $126 New selling price Less: Variable cost Revised Contribution per unit $98 $28