Category > AccountingPosted 05 Aug 2017My Price9.00
PERI AND PAUL COMPANY
The condensed income statement for the Peri and Paul partnership for 2017 is as follows.
PERI 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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