Outback Outfitters sells recreational equipment. One of the company’s products,

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 $159,900 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 9,000 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 $76,000 per month?

Explanation / Answer

Dear Student Thank you for using Chegg Please find below the answer Statementshowing Computations Paticulars Amount Sales price per unit                    130.00 Less Variable Expenses per unit                    (91.00) Contribution Margin per unit                       39.00 Fixed cost            159,900.00 BEP in Units = 159900/39                 4,100.00 BEP in $ = 4100*130            533,000.00 2) IF variable cost increase as % of selling price then CM Ratio will decline resulting in higher BEP 3) Present   Proposed Sales        1,170,000.00        1,316,250.00 Less Variable Expenses          (819,000.00)      (1,023,750.00) Contribution Margin            351,000.00            292,500.00 Fixed cost          (159,900.00)          (159,900.00) Net operating income            191,100.00            132,600.00 4) Profit desired              76,000.00 Fixed cost            159,900.00 Contribution desired            235,900.00 Contribution per unit = 117 - 91                       26.00 stoves would have to be sold = 235900/26                 9,073.08

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