Outback Outfitters sells recreational equipment. One of thecompany’s products, a small camp stove, sells for $50 per unit.Variable expenses are $32 per stove, and fixed expenses associatedwith the stove total $108,000 per month.
Required:
1. What is the break-even point in unit sales and in dollarsales?
2. If the variable expenses per stove increase as a percentageof the selling price, will it result in a higher or a lowerbreak-even point? (Assume that the fixed expenses remainunchanged.)
3. At present, the company is selling 8,000 stoves per month.The sales manager is convinced that a 10% reduction in the sellingprice would result in a 25% increase in monthly sales of stoves.Prepare two contribution format income statements, one underpresent operating conditions, and one as operations would appearafter the proposed changes.
4. Refer to the data in (3) above. How many stoves would have tobe sold at the new selling price to attain a target profit of$35,000 per month?
