1.
Profit |
= Unit CM × Q − Fixed expenses |
$0 |
= ($50 − $32) × Q − $108,000 |
$0 |
= ($18) × Q − $108,000 |
$18Q |
= $108,000 |
Q |
= $108,000 ÷ $18 |
Q |
= 6,000 stoves, or at $50 per stove, $300,000 in sales |
Alternative solution:
2.
An increase in variable expenses as a percentage of the selling price would result in a higher break-even point. If variable expenses increase as a percentage of sales, then the contribution margin will decrease as a percentage of sales. With a lower CM ratio, more stoves would have to be sold to generate enough contribution margin to cover the fixed costs.
3.
Present: |
Proposed: |
||||
Total |
Per Unit |
Total |
Per Unit |
||
Sales |
$400,000 |
$50 |
$450,000 |
$45 |
** |
Variable expenses |
256,000 |
32 |
320,000 |
32 |
|
Contribution margin |
144,000 |
$18 |
130,000 |
$13 |
|
Fixed expenses |
108,000 |
108,000 |
|||
Net operating income |
$ 36,000 |
$ 22,000 |
*8,000 stoves × 1.25 = 10,000 stoves
**$50 × 0.9 = $45
As shown above, a 25% increase in volume is not enough to offset a 10% reduction in the selling price; thus, net operating income decreases.
4.
Profit |
= Unit CM × Q − Fixed expenses |
$35,000 |
= ($45 − $32) × Q − $108,000 |
$35,000 |
= ($13) × Q − $108,000 |
$13 × Q |
= $143,000 |
Q |
= $143,000 ÷ $13 |
Q |
= 11,000 stoves |
Alternative solution:
Check B Outback Outfitters sells recreational equipment. One of the company's products, a small camp stove,...
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please explain
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