The condensed income statement for the Peri and Paul partnershipfor 2017 is as follows.
PERI AND PAUL COMPANY
For the Year Ended December 31, 2017
Sales (240,000units) $1,200,000
Cost of goodssold 800,000
Netloss $(30,000 )
A cost behavior analysis indicates that 70% of the cost of goodssold are variable, 43% of the selling expenses are variable, and39% of the administrative expenses are variable.
(Round to nearest unit, dollar, and percentage, where necessary.Use the CVP income statement format in computing profits.)
Compute the break-even point in total sales dollars and in unitsfor 2017. (Round intermediate calculations to 2 decimal places,e.g. 0.25 and final answers to 0 decimal places, e.g. 2,520.)
Break-even point indollars $
Break-even point inunits units
Peri has proposed a plan to get the partnership âout of the redâand improve its profitability. She feels that the quality of theproduct could be substantially improved by spending $0.25 more perunit on better raw materials. The selling price per unit could beincreased to only $5.25 because of competitive pressures. Periestimates that sales volume will increase by 30%. What effect wouldPeriâs plan have on the profits and the break-even point in dollarsof the partnership?
Paul was a marketing major in college. He believes that salesvolume can be increased only by intensive advertising andpromotional campaigns. He therefore proposed the following plan asan alternative to Periâs: (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 oldmarketing research report that said that sales volume wouldincrease by 61% if these changes were made. What effect wouldPaulâs plan have on the profits and the break-even point in dollarsof the partnership?
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