Chapter saiz anncom-Online Sh. 111 PricelinecomTripAdvisor Question 2 (of 2) Out
ID: 2551195 • Letter: C
Question
Chapter saiz anncom-Online Sh. 111 PricelinecomTripAdvisor Question 2 (of 2) Outback Outfitters sells recreational equipment. One of the company's products, a small camp stove, s for $120 per unit. Variable expenses are $84 per stove, and fixed expenses associated with the stove t 151,200 per month. Required 1. Compute the company's 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 highe or a lower break-even point? (Assume that the fixed expenses remain unch O Higher break-even point O Lower break-even pointExplanation / Answer
1. Break Even Point in Unit Sales = Fixed Cost / Contribution margin per unit
= $ 151,200 / (Sales Price - Variable Cost)
= $ 151,200 / (120 - 84)
= $ 151,200 / $ 36 Per Unit
= 4200 Units
Total Sales dollars = Break even Units * Sales Price Per Units
= 4200 * $ 120
= $ 504,000
2. If Varibale expenses per stove incrases as a percentage of the selling price will it result in a higher break even point . Because the contirbution margin will decrase and result into higher break even point.
3.
$ 1,080,000
(9000*$120)
$ 120
$ 1,260,000
($ 108 * 11,250)
$ 108
(120 - 10%)
$ 756,000
(9000* $84)
$ 84
$ 945,000
(11250 * $ 84)
$ 84
Contribution Margin
(C = A-B)
$ 151,200
$ 16.80
($151,200/9000)
$ 151,200
$ 13.44
($151,200/11250)
4. Number of Stove to be sold = (Fixed Cost + Desired Profit) / New selling price Contribution margin
= ($ 151,200 + $ 74,000) / $ 24 (108-84)
= $ 225,200 / $ 24
= 9384 Units To earn Desire Profit
Outback Outtitters Present Proposed 9,000 Stoves 11,250 (9000+25%) Stoves Total Per Unit Total Per Unit Sales (A)$ 1,080,000
(9000*$120)
$ 120
$ 1,260,000
($ 108 * 11,250)
$ 108
(120 - 10%)
Variable Cost (B)$ 756,000
(9000* $84)
$ 84
$ 945,000
(11250 * $ 84)
$ 84
Contribution Margin
(C = A-B)
$ 324,000 $36 $ 315,000 $ 24 Fixed Cost$ 151,200
$ 16.80
($151,200/9000)
$ 151,200
$ 13.44
($151,200/11250)
Net Profit $ 172,800 $ 13.20 $ 163,800 $ 10.56