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Exercise 6-17 Break-Even and Target Profit Analysis [LO6-4, LO6-5, LO6-6] Outback Outfitters sells recreational equipment. One of the companys products, a small camp stove, sells

Exercise 6-17 Break-Even and Target Profit Analysis [LO6-4, LO6-5, LO6-6]

Outback Outfitters sells recreational equipment. One of the companys products, a small camp stove, sells for $140 per unit. Variable expenses are $98 per stove, and fixed expenses associated with the stove total $197,400 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 12,000 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.

Exercise 6-17 Break-Even and Target Profit Analysis [LO6-4, LO6-5, LO6-6]

Outback Outfitters sells recreational equipment. One of the companys products, a small camp stove, sells for $140 per unit. Variable expenses are $98 per stove, and fixed expenses associated with the stove total $197,400 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 12,000 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.

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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 $72,000 per month?

Contribution Income Statement Proposed Outback Outfitters Present 12,000 Stoves Total Per unit Stoves Total Per unit 0 $ 0 0 0

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