Question

Outback out r ters sells recreational equipment. One of the company's products, a small camp stove, sells for $1 40 per unit Variable expenses are串98 per stove, anc fixed expenses associated with the stove tota $197,400 per month. Required: 1. Compute the company's break-even point in unit sales and in dollar sales. Polnt Number of stowes Total sales dollars 4,70 658,000 $ 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-veri poin Lower break even point 3 At present, the company is selling 19,00 stoves per month. The sales mana er is oonvinced that a 10% reduction in the selling price would result in a 259 income statements, one under present operating conditions, and one as operations would appear after the proposed changes increase in monthly sales of st es. Prepare two contribution ormat Present 19,000 Stoves Stoves Total Per unit Total Per unit 5 2650,00 140г$ 2,992,500 120 riable expenses 08 2,650,000S 12 2,992,500 S 197,400 Contribution margin ixcd cxpcriscs 197.400 t operatng income 5 2,452,600 S 2,795,100

Answer 1

1
	Break-even point
Number of stoves	4700	=197400/(140-98)
Total sales dollars	658000	=4700*140
2
Higher break even point
3
	Present		Proposed
	19000	stoves	23750	stoves
	Total	Per unit	Total	Per unit
Sales	2660000	140	2992500	126
Variable expenses	1862000	98	2327500	98
Contribution margin	798000	42	665000	28
Fixed expenses	197400		197400
Net operating income	600600		467600
4
Number of stoves to be sold	9800	=(197400+77000)/28