Exercise 5-12 Break-Even and Target Profit Analysis [LO4, LO5, LO6]

Reveen Products sells camping equipment. One of the companys products, a camp lantern, sells for $120 per unit. Variable expenses are $84 per lantern, and fixed expenses associated with the lantern total $151,200 per month.

Required:
1.	Compute the companys break-even point in number of lanterns and in total sales dollars.

Number of lanterns
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? (Assume that the fixed expenses remain unchanged.)

Which one is it?

Higher break-even poin?

Lower break-even point?

3.At present, the company is selling 18,000 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. (Input all amounts as positive values except losses which should be indicated by a minus sign.)

Present 18,000 lanterns		Proposed ? lanterns
	Total	Per Unit	Total	Per Unit
(Click to select)Contribution marginFixed expensesVariable expensesNet operating income (loss)Sales	$ ?	$ ?	$ ?	$ ?
(Click to select)Net operating income (loss)Fixed expensesSalesContribution marginVariable expenses
(Click to select)Contribution marginNet operating income (loss)Fixed expensesSalesVariable expenses		$		$
(Click to select)Net operating income (loss)Variable expensesContribution marginFixed expensesSales
(Click to select)Contribution marginSalesVariable expensesNet operating income (loss)Fixed expenses	$		$

efer to the data in (3) above. How many lanterns would have to be sold at the new selling price to yield a minimum net operating income of $77,000 per month? (Round your answer to the nearest whole number.)

Number of lanterns to be sold