Outback Outfitters manufactures and sells recreational equipment. One of the company's products, a small camp stove, sells for £180 per unit. Variable expenses are £108 per stove, and fixed expenses associated with the stove total £525,600 per month. Required: 1. Compute the break-even point in number of stoves. (Round your answer to the nearest whole number.) Compute the break-even point in total sales pounds. (Round your answer to the nearest whole number.) 2. If the variable expenses per stove increase as a percentage of the selling price, it will result in a higher break-even point. (Assume that the fixed expenses remain unchanged.) multiple choice True False 4. At present, the company is selling 9,300 stoves per month. The sales manager is convinced that a 10 per cent reduction in the selling price would result in a 25% increase in monthly sales of stoves. How many stoves would have to be sold at the new selling price to yield a minimum profit of £138,600 per month? (Do not round intermediate calculations. Round your answer to the nearest whole number.)
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
Outback Outfitters manufactures and sells recreational equipment. One of the company's products, a small camp stove, sells for £180 per unit. Variable expenses are £108 per stove, and fixed expenses associated with the stove total £525,600 per month.
Required:
1. Compute the break-even point in number of stoves. (Round your answer to the nearest whole number.)
Compute the break-even point in total sales pounds. (Round your answer to the nearest whole number.)
2. If the variable expenses per stove increase as a percentage of the selling price, it will result in a higher break-even point. (Assume that the fixed expenses remain unchanged.)
multiple choice
True
False
4. At present, the company is selling 9,300 stoves per month. The sales manager is convinced that a 10 per cent reduction in the selling price would result in a 25% increase in monthly sales of stoves. How many stoves would have to be sold at the new selling price to yield a minimum profit of £138,600 per month? (Do not round intermediate calculations. Round your answer to the nearest whole number.)
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