Reveen Products sells camping equipment. One of the company\'s products, a camp

Question

Reveen Products sells camping equipment. One of the company's products, a camp lantern, sells for $140 per unit. Variable expenses are $98 per lantern, and fixed expenses associated with the lantern total $205,800 per month. 1. Compute the company's break-even point in number of lanterns and in total sales dollars Number of lanterns Total sales dollars If the variable expenses per lantern 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 11.000 lanterns 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 format income statements, one under present operating conditions, and one as operations would appear after the proposed changes. (Input all amounts as positive values except losses which should be indicated by a minus sign.) refer to the data in (3) above. how many lanterns would have be sold at the new selling price to yield a minimum at operating income of $73,000 per month?

Explanation / Answer

a) Breakeven point is 205800 / (140 - 98 ) = 4900 units = > 686,000 sales

b) Higher breakeven point

c)

Item, Present Total Per unit Future Total Per Unit

Sales 1,540,000 140 1,732,500 126

Variable 1,078,000 98 1,347,500 98

Fixed 205800 18.71 205,800 14.97

Total P/L 256200 23.29 179,200 13.03

Hence the current idea is better and stick to it

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