For ue Sales (200,000 units) $1,200,000 Cost of goods sold 800,000 Gross Profit 400,000 Operating expenses Selling Administrative $280,000 160,000 440,000 Net Loss ($40,000) A cost behavior analysis indicates that 75% of the cost of goods sold are variable, 50% of the selling expenses are variable, and 25% of the administrative expenses are variable. Instructions: (Round to nearest unit, dollar, and percentage, where necessary.) (a) Compute the break-even point in total sales dollars and in units for 2010. (b) Terri has proposed a plan to get the partnership "out of the red" and improve its profitability. She feels that the quality of the product could be substantially improved by spending $0.25 more per unit on better raw materials. The selling price per unit could be increased to only $6.25 because of competitive pressures. Terri estimates that sales volume will increase by 30%. What effect would Terri's plan have on the profits and the break-even point in dollars of the partnership? (Round the contribution margin ratio to two decimal places.) (c) Jerri was a marketing major in college. She believes that sales volume can be increased only by intensive advertising and promotional campaigns. She therefore proposed the following plan as an alternative to Terri's. (1) Increase variable selling expenses to $0.79 per unit, (2) lower the selling price per unit by $0.30, and (3) increase fixed selling expenses by $35,000. Jerri quoted an old marketing research report that said that sales volume would increase by 60% if these changes were made. What effect would Jerri's plan have on the profits and the break-even point in dollars of the partnership? (d) Which plan should be accepted? Explain your answer
For ue Sales (200,000 units) $1,200,000 Cost of goods sold 800,000 Gross Profit 400,000 Operating expenses Selling Administrative $280,000 160,000 440,000 Net Loss ($40,000) A cost behavior analysis indicates that 75% of the cost of goods sold are variable, 50% of the selling expenses are variable, and 25% of the administrative expenses are variable. Instructions: (Round to nearest unit, dollar, and percentage, where necessary.) (a) Compute the break-even point in total sales dollars and in units for 2010. (b) Terri has proposed a plan to get the partnership "out of the red" and improve its profitability. She feels that the quality of the product could be substantially improved by spending $0.25 more per unit on better raw materials. The selling price per unit could be increased to only $6.25 because of competitive pressures. Terri estimates that sales volume will increase by 30%. What effect would Terri's plan have on the profits and the break-even point in dollars of the partnership? (Round the contribution margin ratio to two decimal places.) (c) Jerri was a marketing major in college. She believes that sales volume can be increased only by intensive advertising and promotional campaigns. She therefore proposed the following plan as an alternative to Terri's. (1) Increase variable selling expenses to $0.79 per unit, (2) lower the selling price per unit by $0.30, and (3) increase fixed selling expenses by $35,000. Jerri quoted an old marketing research report that said that sales volume would increase by 60% if these changes were made. What effect would Jerri's plan have on the profits and the break-even point in dollars of the partnership? (d) Which plan should be accepted? Explain your answer
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Transcribed Image Text:For ue
Sales (200,000 units)
$1,200,000
Cost of goods sold
800,000
Gross Profit
400,000
Operating expenses
Selling
Administrative
$280,000
160,000
440,000
Net Loss
($40,000)
A cost behavior analysis indicates that 75% of the cost of goods sold are variable, 50% of the selling
expenses are variable, and 25% of the administrative expenses are variable.
Instructions: (Round to nearest unit, dollar, and percentage, where necessary.)
(a) Compute the break-even point in total sales dollars and in units for 2010.
(b) Terri has proposed a plan to get the partnership "out of the red" and improve its profitability. She feels
that the quality of the product could be substantially improved by spending $0.25 more per unit on better
raw materials. The selling price per unit could be increased to only $6.25 because of competitive
pressures. Terri estimates that sales volume will increase by 30%. What effect would Terri's plan have on
the profits and the break-even point in dollars of the partnership? (Round the contribution margin ratio to
two decimal places.)
(c) Jerri was a marketing major in college. She believes that sales volume can be increased only by
intensive advertising and promotional campaigns. She therefore proposed the following plan as an
alternative to Terri's. (1) Increase variable selling expenses to $0.79 per unit, (2) lower the selling price
per unit by $0.30, and (3) increase fixed selling expenses by $35,000. Jerri quoted an old marketing
research report that said that sales volume would increase by 60% if these changes were made. What
effect would Jerri's plan have on the profits and the break-even point in dollars of the partnership?
(d) Which plan should be accepted? Explain your answer
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 7 steps
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education