Raveen Products sells camping equipment. One of the company’s products, a camp lantern, sells for $80 per unit. They managed to sell 10,000 lanterns per month. Variable expenses are $55 per lantern, and fixed expenses associated with the lantern total $150,000 per month. Compute the company’s Margin of Safety in percentage. If the variable expenses per lantern 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.)
Raveen Products sells camping equipment. One of the company’s products, a camp lantern, sells for $80 per unit. They managed to sell 10,000 lanterns per month. Variable expenses are $55 per lantern, and fixed expenses associated with the lantern total $150,000 per month. Compute the company’s Margin of Safety in percentage. If the variable expenses per lantern 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.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Raveen Products sells camping equipment. One of the company’s products, a camp lantern, sells for $80 per unit. They managed to sell 10,000 lanterns per month. Variable expenses are $55 per lantern, and fixed expenses associated with the lantern total $150,000 per month.
- Compute the company’s Margin of Safety in percentage.
- If the variable expenses per lantern 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.)
At present, the company is selling 10,000 lanterns per month. The sales manager is convinced that a 10% reduction in the selling price will result in a 50% increase in the number of lanterns sold each month. Prepare two contribution format income statements, one under present operating conditions, and one as operations would appear after the proposed changes.
- Calculate Contribution Margin Amount of Present Operating Conditions
- Calculate Net Profit of Present Operating Conditions
- Calculate Contribution Margin Amount after Proposed Changes
- Calculate Net Profit after Proposed Changes
- Refer to the data of proposed changes of sales manager above. How many lanterns (Quantity only) would have to be sold at the new selling price to yield a minimum net operating income of $88,000 per month?
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