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 $172,800 per month.

3. At present, the company is selling 12,000 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 $73,000 per month?

Explanation / Answer

Outback Outfitters Contribution Income Statement Present Proposed 12,000 Stoves 15,000 Stoves Total Per unit Total Per unit Sales 1440000 120 1620000 108 Variable expenses 1008000 84 1260000 84 Contribution margin $432,000 $36 $360,000 $24 Fixed expenses 172800 172800 Net operating income $259,200 $187,200 4 Stoves to be sold=(172800+73000)/24= 10242

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