Krait Products sells camping equipment. One of the company’s products, a camp lantern, sells for $90 per unit. Variable expenses are $63 per lantern, and fixed expenses associated with the lantern total $135,000 per month.

Required:

1. Compute the company’s break-even point in number of lanterns and in total sales dollars.

2. If the variable expenses per lantern 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 lanterns per month. The sales manager is convinced that a 10% reduction in the selling price will result in a 25% increase in the number of lanterns sold each month. Prepare two contribution format income statements: one under present operating conditions, 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 part (3) above. How many lanterns would have to be sold at the new selling price to yield a minimum net operating income of $72,000 per month?