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 150,000 per month. Required: 1. Comput e the company's break-even point in unit sales and in dollar sales. Break-Even Point Number of stoves 5,000 Total sales dollars 500,000 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 19,000 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.

Explanation / Answer

1 Number of stoves = 150000/(100-70) = 5000 Total sales dollars = 5000*100 = 500000 2 Higher break even point 3 Present Proposed 19000 stoves 23750 stoves Total Per unit Total Per unit Sales 1900000 100 2137500 90 Variable expenses 1330000 70 1662500 70 Contribution margin 570000 30 475000 20 Fixed expenses 150000 150000 Net operating income 420000 325000 4 Number of stoves to be sold = (74000+150000)/20= 11200

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