Question

Outback Outfitters sells recreational equipment. One of the company’s products, a small camp stove, sells for $120 per unit. Variable expenses are $84 per stove, and fixed expenses associated with the stove total $169,200 per month.

Required:

1. 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

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 Lower break-even

3. At present, the company is selling 15,000 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 Contribution Income Statement Present Proposed 15,000 Stoves Stoves Total Per unit Total    Per unit

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 $74,000 per month?

	Unit sales needed to attain the target profit

Answer 1