## Answers

1. | |

Contribution margin per unit = Selling price per unit - Variable cost per unit = 100 - 70 | 30 |

Contribution margin ratio = Contribution margin per unit / Selling price per unit = 30 / 100 | 30% |

Break-Even Point | |

Number of stoves = Total Fixed cost / Contribution margin per unit = 144000 / 30 | 4800 |

Total sales dollars = Total fixed costs / Contribution margin ratio = 144000 / 30% | 480000 |

2. |

If the variable expense per stove increases as a percentage of the selling price and the fixed costs remains unchanged then it will result in higher break-even point, because the contribution margin per unit will decrease which will lead to higher break-even point |

3. | |

Proposed selling price = Present selling price * ( 1 - % reduction ) = 100 * ( 1 - 10% ) | 90 |

Proposed sales of stoves = Present sales of stoves * ( 1 + % increase ) = 17000 * ( 1 + 25% ) | 21250 |

Outback Outfitters | ||||

Present | Proposed | |||

17000 | Stoves | 21250 | Stoves | |

Total | Per unit | Total | Per unit | |

Sales | 1700000 | 100 | 1912500 | 90 |

Variable costs | 1190000 | 70 | 1487500 | 70 |

Contribution margin | 510000 | 30 | 425000 | 20 |

Fixed costs | 144000 | 144000 | ||

Net operating income | 366000 | 281000 |

4. | |

Number of stoves to be sold = ( Net operating income + Fixed costs ) / Contribution margin per unit = ( 79000 + 144000 ) / 20 | 11150 |

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