Exercise 5-17 Break-Even and Target Profit Analysis [LO5-4, LO5-5, LO5-6]

Outback Outfitters sells recreational equipment. One of the companys products, a small camp stove, sells for $150 per unit. Variable expenses are $105 per stove, and fixed expenses associated with the stove total $193,500 per month.

Required:

1.

Compute the companys break-even point in unit sales and in dollar sales.

	Break-Even Point
Number of stoves
Total sales dollars

+

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-even point
	Lower break-even point

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.

Outback Outfitters
	Present			Proposed
	9,000	Stoves		Stoves
	Total	Per unit	Total	Per unit

+

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 $74,000 per month? (Round up your answer to the nearest whole number.)

Number of stoves to be sold

+