Outback Outfitters sells recreational equipment. One of thecompany’s products, a small camp stove, sells for $100 per unit.Variable expenses are $70 per stove, and fixed expenses associatedwith the stove total $144,000 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 20,000 stoves permonth. The sales manager is convinced that a 10% reduction in theselling price would result in a 25% increase in monthly sales ofstoves. Prepare two contribution format income statements, oneunder present operating conditions, and one as operations wouldappear after the proposed changes.

4. Refer to the data in Required 3. How many stoveswould have to be sold at the new selling price to attain a targetprofit of $77,000 per month?

	Outback Outfitters Contribution Income Statement Present Proposed 20,000 Stoves ? Stoves Total Per unit Total Per unit Sales $2,000,000 ? $25,000 ? Variable expenses 1,400,000 ? ? ? Contribution margin 600,000 $0 25,000 $0 Fixed expenses 144,000 144,000 Net operating income $456,000 $(119,000)