Question 2

Raveen Products sells camping equipment. One of the companys products, a camp lantern, sells for $100 per unit. They managed to sell 10,000 lanterns per month. Variable expenses are $65 per lantern, and fixed expenses associated with the lantern total $140,000 per month.

Required:

Compute the companys break-even point in number of lanterns. Compute the companys break-even point in total sales dollars. Compute the companys Margin of Safety in sales dollar. Compute the companys Margin of Safety in percentage. 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.) Note: Write Higher or Lower in provided Box

At present, the company is selling 10,000 lanterns per month. The sales manager is convinced that a 15% reduction in the selling price will result in a 45% 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.

Calculate Contribution Margin Amount of Present Operating Conditions Calculate Net Profit of Present Operating Conditions Calculate Contribution Margin Amount after Proposed Changes Calculate Net Profit after Proposed Changes Refer to the data of proposed changes of sales manager above. How many lanterns (Quantity only) would have to be sold at the new selling price to yield a minimum net operating income of $80,000 per month?