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The condensed income statement for the Peri and Paul partnership for 2017 is as follows.
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Write My Essay For MePERI AND PAUL COMPANY
Income Statement
For the Year Ended December 31, 2017
Sales (240,000 units) $1,200,000
Cost of goods sold 800,000
Gross profit 400,000
Operating expenses
Selling $280,000
Administrative 150,000
430,000
Net loss $(30,000 )
A cost behavior analysis indicates that 70% of the cost of goods sold are variable, 43% of the selling expenses are variable, and 39% of the administrative expenses are variable.
(Round to nearest unit, dollar, and percentage, where necessary. Use the CVP income statement format in computing profits.)
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Compute the break-even point in total sales dollars and in units for 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 in dollars $
Break-even point in units units
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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 30%. What effect would Peri’s plan have on the profits and the break-even point in dollars of the partnership?
Amount Effect
Profit $ DecreaseIncrease
Break-even point $ DecreaseIncrease
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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 61% 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?
Amount Effect
Profit $ DecreaseIncrease
Break-even point $ DecreaseIncrease
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Which plan should be accepted?
Peri’s planPaul’s plan should be accepted.
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condensed income statement
