Reveen Products sells camping equipment. One of the company’s products, a camp lantern, sells

Exercise 5-12 Break-Even and Target Profit Analysis [LO4, LO5, LO6]

Reveen Products sells camping equipment. One of the company’s products, a camp lantern, sells for $90 per unit. Variable expenses are $63 per lantern, and fixed expenses associated with the lantern total $135,000 per month.

Required:
1.	Compute the company’s break-even point in number of lanterns and in total sales dollars. (Omit the "$" sign in your response.)

Number of lanterns	5,000
Total sales dollars	$ 450,000

2.	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.)
	Higher break-even point

3.

At present, the company is selling 8,000 lanterns per month. The sales manager is convinced that a 10% reduction in the selling price will result in a 25% 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. (Input all amounts as positive values except losses which should be indicated by a minus sign. Omit the "$" sign in your response.)

	Present 8,000 lanterns		Proposed 10,000  lanterns
	Total	Per Unit	Total	Per Unit
Sales	$ 720,000	$ 90	$ 810,000	$ 81
Variable expenses	504,000	63	630,000	63
Contribution margin	216,000	$ 27	180,000	$ 18
Fixed expenses	135,000		135,000
Net operating income (loss)	$ 81,000		$ 45,000

4.	Refer to the data in (3) above. How many lanterns would have to be sold at the new selling price to yield a minimum net operating income of $72,000 per month?

Number of lanterns to be sold

11,500