The condensed income statement for the Terri and Jerri partnership for 2010 is as follows. TERRI AND JERRI COMPANY Income Statement For the Year Ended December 31, 2010 Sales (200,000 units) Cost of goods sold $1,200,000 800,000 Gross Profit 400,000 Operating expenses Selling $280,000 Administrative 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 feel that the quality of the product could be substantially improved by spending $0.25 more per unit on bette raw materials. The selling price per unit could be increased to only $6.25 because of competitiv pressures. Terri estimates that sales volume will increase by 30%. What effect would Terri's plan have of the profits and the break-even point in dollars of the partnership? (Round the contribution margin ratio t two decimal places.) (c) Jerri was a marketing major in college. She believes that sales volume can be increased only b- intensive advertising and promotional campaigns. She therefore proposed the following plan as a alternative to Terri's. (1) Increase variable selling expenses to $0.79 per unit, (2) lower the selling pric per unit by $0.30, and (3) increase fixed selling expenses by $35,000. Jerri quoted an old marketin research report that said that sales volume would increase by 60% if these changes were made. Wha 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
The condensed income statement for the Terri and Jerri partnership for 2010 is as follows. TERRI AND JERRI COMPANY Income Statement For the Year Ended December 31, 2010 Sales (200,000 units) Cost of goods sold $1,200,000 800,000 Gross Profit 400,000 Operating expenses Selling $280,000 Administrative 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 feel that the quality of the product could be substantially improved by spending $0.25 more per unit on bette raw materials. The selling price per unit could be increased to only $6.25 because of competitiv pressures. Terri estimates that sales volume will increase by 30%. What effect would Terri's plan have of the profits and the break-even point in dollars of the partnership? (Round the contribution margin ratio t two decimal places.) (c) Jerri was a marketing major in college. She believes that sales volume can be increased only b- intensive advertising and promotional campaigns. She therefore proposed the following plan as a alternative to Terri's. (1) Increase variable selling expenses to $0.79 per unit, (2) lower the selling pric per unit by $0.30, and (3) increase fixed selling expenses by $35,000. Jerri quoted an old marketin research report that said that sales volume would increase by 60% if these changes were made. Wha 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
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Answer the 4 questions in a detailed way.
![The condensed income statement for the Terri and Jerri partnership for 2010 is as follows.
TERRI AND JERRI COMPANY
[10]
Income Statement
For the Year Ended December 31, 2010
Sales (200,000 units)
Cost of goods sold
$1,200,000
800,000
Gross Profit
400,000
Operating expenses
Selling
$280,000
Administrative
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](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F49510156-c41e-46eb-b468-732b93d7e732%2Fb75d9cdd-2be7-48dc-9c5b-38f65ab2d6f4%2Fjb858ah_processed.jpeg&w=3840&q=75)
Transcribed Image Text:The condensed income statement for the Terri and Jerri partnership for 2010 is as follows.
TERRI AND JERRI COMPANY
[10]
Income Statement
For the Year Ended December 31, 2010
Sales (200,000 units)
Cost of goods sold
$1,200,000
800,000
Gross Profit
400,000
Operating expenses
Selling
$280,000
Administrative
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
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