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 $120 per unit. Variable expenses are $84 per stove, and fixed expenses associated with the stove total S144,000 per month. Required 1. Compute the company's break-even point in unit sales and in dollar sales. Break-Even Point Number of stoves Total sales dollars 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 point Lower break-even point 3. At present, the company is selling 18,000 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 Present Proposed 18,000 Stoves Stoves Total Per unit Total Per unit

Explanation / Answer

1.

480000

Number of stoves= 4000, sales dollars= 480000

2. If the variable expenses increases in reduces the contribution margin hence required more units to break even.

Option 1: Higher break even point is correct

3. New selling price= 120*90%= 108

New sales units= 18000*125%= 22500

4. Required profit= 74000

Required contribution= 74000+144000= 218000

Required sales units= required contribution/contribution per unit= 218000/24= 9084

Ref Particulars Amount a Selling price 120 Less: Variable cost -84 A Contribution per unit 36 B Fixed costs 144000 C=B/A BEP units 4000 D=C*a BEP sales

480000

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