Reveen Products sells camping Equipment. One of the company\'s products a campin

Question

Reveen Products sells camping Equipment. One of the company's products a camping lantern, sells for $ 90 a unit. Variable expenses are $ 63 per lantern, and fixed expenses associated with the lantern total $ 135,000. per month.

Required:

A: compute the company's break even point in number of lanterns and in number of lanterns and in total sales dollars.

B: If the variable expenses per lantern increase as a percentage of the selling price, will it result in a higher or lower break even point? Why? (Assume that the fixed expenses remain unchanged)

C: At present the company is selling 8,000 per month. The sales manager is convinced that a 10% reduction in the selling price will result in a 25% increase in the number of lanterns sold each month. Prepare two contribution income statements, one under present operating conditions and one as operations would appear after the proposed changes. Sho both total and per unit data on your statements and determine if the proposed changes will be beneficial to the company's net operating income.

D: refer to the data in (c) above. How many lanterns would have to be sold at the new selling price to yield a minimum net operating income of $ 72,000 per month?

Please break down step by step and show your work.

Explanation / Answer

A) Breakeven = 135000 / ( 90 - 63 ) = 5000 units

B) It will result in lower breakeven point. Because as the fixed expense remains same, selling price - variable expense increase. Hence breakeven point = fixed expense / ( selling price - variable price ) falls

C)

Current

Selling price per unit = 90

Variable cost per unit = 63

fixed cost per unit = 135000 / 8000 = 16.875

Profit per unit = 90 - 63 - 16.875 = 10.125

Profit per 8000 units = 10.125 * 8000 = 81000

Future

Selling price = 90 * 0.9 = 81

Variable cost = 63

Units = 8000 * 1.25 = 10,000

Fixed cost per unit = 135000 / 10000 = 13.5

Prodift per unit = 81 - 63 - 13.5 = 4.5

Profit for 10,000 units = 4.5 * 10000 = 45000

As 81000 > 45000, the new changes are not beneficial

D) Let the lanterns to be sold = x

135000 + 72000 = ( 81 - 63 ) * x

X = 11500 units

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.