EXERCISE 5-17 Break-Even and Target Profit Analysis (L05-4, L05-5, L05-6] Outback Outfitters sells recreational equipment. One of the company's products, a small camp stove, sells for $50 per unit. Variable expenses are $32 per stove, and fixed expenses associated with the stove total $108,000 per month. Required: 1. Compute the break-even point in unit sales and in dollar sales. 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? Why? (Assume that the fixed expenses remain unchanged.) 3. At present, the company is selling 8,000 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 con- ditions, and one as operations would appear after the proposed changes. Show both total and per unit data on your statements. 4. Refer to the data in (3) above. How many stoves would have to be sold at the new selling price to yield a minimum net operating income of $35,000 per month?
Related questions
Outback Outfitters sells recreational equipment. One of thecompanyâs products, a small camp stove, sells for $130 per unit.Variable expenses are $91 per stove, and fixed expenses associatedwith the stove total $179,400 per month. |
| Required: | |
| 1. | Compute the companyâs break-even point in unit sales and indollar sales. |
| 2. | If the variable expenses per stove increase as a percentage ofthe selling price, will it result in a higher or a lower break-evenpoint? (Assume that the fixed expenses remain unchanged.) | ||||
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| 3. | At present, the company is selling 16,000 stoves per month. Thesales manager is convinced that a 10% reduction in the sellingprice would result in a 25% increase in monthly sales of stoves.Prepare two contribution format income statements, one underpresent operating conditions, and one as operations would appearafter the proposed changes. |
| 4. | Refer to the data in (3) above. How many stoves would have to besold at the new selling price to yield a minimum net operatingincome of $74,000 per month? (Round your answer to thenearest whole number.) |
| Outback Outfitters sells recreational equipment. One of the companyâs products, a small camp stove, sells for $120 per unit. Variable expenses are $84 per stove, and fixed expenses associated with the stove total $154,800 per month.
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