Question

Outback Outfitters sells recreational equipment. One of the company's products, a small camp stove, sells for $140 per unit. Variable expenses are $98 per stove, and fixed expenses associated with the stove total $184,800 per month. Required: 1. What is 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? (Assume that the fixed expenses remain unchanged.) 3. At present, the company is selling 9,000 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 $71,000 per month? Complete this question by entering your answers in the tabs below. Required i Required 2 Required 3 Required 4 What is the break-even point in unit sales and in dollar sales? Break-even point in unit sales Break-even point in dollar sales Required 2 >

please explain

Answer 1

1.

Break Even Sales = (in units )

4400 units

Break Even Sales = (in dollars )

$ 6,16,000.00

Working:

Selling Price	$           140.00
Variable Cost	$             98.00
Contribution Margin	$             42.00
Fixed Cost	$ 1,84,800.00
Break Even Sales =	Budgeted Fixed Cost / CM
Break Even Sales = (in units )	4400 units
	=184800/42
Break Even Sales =	Budgeted Fixed Cost / CM %
Break Even Sales = (in dollars )	$ 6,16,000.00
	=184800/30%

2.

If variable expenses increase : Break even point will also increase

Hence, Break even point will be Higher

3.

Outback Outfitters
Contribution Income Statement	Present		Proposed
	9000	Stoves	11250	Stoves
	Total	Per unit	Total	Per unit
Sales Revenue	$    12,60,000.00	$         140.00	$ 14,17,500.00	$     126.00
Less: Variable Cost	$      8,82,000.00	$           98.00	$ 11,02,500.00	$        98.00
Contribution	$      3,78,000.00	$           42.00	$    3,15,000.00	$        28.00
Less: Fixed Cost	$      1,84,800.00		$    1,84,800.00
Net Income	$      1,93,200.00		$    1,30,200.00

4.

Break Even Sales = (in units )

2,536 units

Working:

Target profit	71000
Contribution Margin per unit	28
Break Even Sales =	Budgeted Fixed Cost / CM
Break Even Sales = (in units )	2,536 units