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 $110 per unit Variable expenses are $77 per stove, and fixed expenses associated with the stove total $135,300 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) O Higher break-even point Lower break-even point 3. At present, the company is selling 10,000 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 to contribution format income statements, one under present operating conditions, and one as operations would appear after the proposed changes Outback Outfitters Present Proposed 10,000 Stoves Stoves Total Per unit Total Per unit

Explanation / Answer

Req 1. Selling pricec per unit: 110 Variable cost per unit 77 Contribution margin per unit: 33 (Selling price-Variable cost) CM ratio 30% (Contribution/ Selling price) Fixed Cost 135300 Break Even in Units: Fixed cost / Contribution margin per unit = 135300 /33 = 4100 Units Break Even in $: Fixed Cost/ CM ratio = 135300 /30% = $ 451,000 Req 2: With the Increase in % of Variable cost over sales, The break even point wil rise to: Higher Break even point. This is due to CM ratio will fall and fixed cost will remAIN. Req 3: CONTRIBUTION MARGIN INCOME STATEMENT PRESENT PROPOSED 10000 STOVES 12500 STOVES TOTAL PER UNIT TOTAL PER UNIT Sales revenue 1100000 110 1237500 99 Less: Variable cost 770,000 77 962500 77 Contribution margin 330,000 33 275,000 22 Less: Fixed cost 135,300 135300 Net Income 194,700 139,700 Req 4: Revised Selling price per unit: 99 Variable cost per unit 77 Contribution margin per unit 22 Desired profits: 77000 Desired contribution 212300 Target Sales in Units: Desired Contribution/ Contribution margin per unit 212300 /22 = 9650 units

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.