The condensed income statement for the Peri and Paul partnership for 2020 is as follows Peri and Paul company income statement For the year ended December 31, 2020 Items $ Sales (240000 units) 1,200,000 Cost of good sold Gross profit 800,000 400,000 Operating expenses 430,000 Selling Administrative Net loss 280,000 150,000 (30,000) A cost behavior analysis indicates that 75% of the cost of goods sold are variable, 42% of the selling expenses are variable, and 40% of the administrative expenses are variable. Instructions (Round to nearest unit, dollar, and percentage, where necessary) a. Provide information on either the sales in dollars or sales quantity at the break-even point for 2020 (5 points) b. Peri 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 $5.25 because of competitive pressures. Peri estimates that sales volume will increase by 25%. What effect would Peri'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.) (10 points) c. Paul was a marketing major in college. He believes that sales volume can be increased only by intensive advertising and promotional campaigns. He therefore proposed the following plan as an alternative to Peri's: (1) increase variable selling expenses to $0.59 per unit, (2) lower the selling price per unit by $0.25, and (3) increase fixed selling expenses by $40,000. Paul quoted an old marketing research report that said that sales volume would increase by 60% if these changes were made. What effect would Paul's plan have on the profits and the break-even point in dollars of the partnership? (10 points) d. Which plan should be accepted? Explain your answer. (5 points)
The condensed income statement for the Peri and Paul partnership for 2020 is as follows Peri and Paul company income statement For the year ended December 31, 2020 Items $ Sales (240000 units) 1,200,000 Cost of good sold Gross profit 800,000 400,000 Operating expenses 430,000 Selling Administrative Net loss 280,000 150,000 (30,000) A cost behavior analysis indicates that 75% of the cost of goods sold are variable, 42% of the selling expenses are variable, and 40% of the administrative expenses are variable. Instructions (Round to nearest unit, dollar, and percentage, where necessary) a. Provide information on either the sales in dollars or sales quantity at the break-even point for 2020 (5 points) b. Peri 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 $5.25 because of competitive pressures. Peri estimates that sales volume will increase by 25%. What effect would Peri'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.) (10 points) c. Paul was a marketing major in college. He believes that sales volume can be increased only by intensive advertising and promotional campaigns. He therefore proposed the following plan as an alternative to Peri's: (1) increase variable selling expenses to $0.59 per unit, (2) lower the selling price per unit by $0.25, and (3) increase fixed selling expenses by $40,000. Paul quoted an old marketing research report that said that sales volume would increase by 60% if these changes were made. What effect would Paul's plan have on the profits and the break-even point in dollars of the partnership? (10 points) d. Which plan should be accepted? Explain your answer. (5 points)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:The condensed income statement for the Peri and Paul
partnership for 2020 is as follows
Peri and Paul company income statement
For the year ended December 31, 2020
Items
$
Sales (240000 units) 1,200,000
Cost of good sold
Gross profit
800,000
400,000
Operating expenses 430,000
Selling
Administrative
Net loss
280,000
150,000
(30,000)
A cost behavior analysis indicates that 75% of the cost of
goods sold are variable, 42% of the selling expenses are
variable, and 40% of the administrative expenses are variable.
Instructions (Round to nearest unit, dollar, and percentage,
where necessary)
a. Provide information on either the sales in dollars or sales
quantity at the break-even point for 2020 (5 points)
b. Peri 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 $5.25 because of
competitive pressures. Peri estimates that sales volume will
increase by 25%. What effect would Peri'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.)
(10 points)
c. Paul was a marketing major in college. He believes that
sales volume can be increased only by intensive advertising
and promotional campaigns. He therefore proposed the
following plan as an alternative to Peri's: (1) increase variable
selling expenses to $0.59 per unit, (2) lower the selling price
per unit by $0.25, and (3) increase fixed selling expenses by
$40,000. Paul quoted an old marketing research report that
said that sales volume would increase by 60% if these changes
were made. What effect would Paul's plan have on the profits
and the break-even point in dollars of the partnership? (10
points)
d. Which plan should be accepted? Explain your answer. (5
points)
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