Question
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,
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 $201,600 per month. |
Required: | |
1. | Compute the companys 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.) | ||||
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3. | At present, the company is selling 17,000 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 (3) above. How many stoves 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.) |
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