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 $195,000 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 17,000 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 $78,000 per month?

	Break-even point in unit sales Break-even point in dollar sales

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 pointradio button unchecked1 of 2 Lower break-even pointradio button unchecked2 of 2

At present, the company is selling 17,000 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 17,000 Stoves Stoves Total Per unit Total Per unit 0 $0 0 $0 $0 $0

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 $78,000 per month? (Round up your final answer to the nearest unit.)

	Unit sales needed to attain the target profit

Answer 1