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 $100 per unit. Variable expenses are $70 per stove, and fixed expenses associated with the stove total $144,000 per month.

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. How many stoves would have to be sold at the new selling price to yield a minimum net operating income of $77,000 per month?

Explanation / Answer

selling price with 10% reduction = 100*(1-.10) = 90 contribution margin per unit = selling price - variable expenses = 90 - 70 = 20 Units needed to make 77,000 = (77,000 + fixed costs)/contribution margin = (77,000 + 144,000)/20 = 221,000/20 = 11,050 answr: 11,050 units

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