Outback Outfitters sells recreational equipment. One of the company's products, a small camp stove, sells for $120 per unit. Variable expenses are $84 per stove, and fixed expenses associated with the stove total $169,200 per month. Required:
a. What is the break-even point in unit sales and in dollar sales?
b. 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.)
c. At present, the company is selling 10,000 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.