A condensed budgeted income statement for Cozy Cafe for 2022 is as follows:

Cozy Cafe Income Statement Year Ending December 31, 2022
Sales (201,600 units)				$1,008,000
Cost of goods sold				672,000
Gross profit				336,000
Operating expenses
Selling		$235,200
Administrative		126,000		361,200
Operating loss				$(25,200)

A cost behavior analysis indicates that 75% of the cost of goods sold is variable, 42% of the selling expenses are variable, and 40% of the administrative expenses are variable. Using the CVP income statement format in calculating operating income.

i) Calculate the break-even point in total sales dollars and in units for 2022. Ensure to round contribution margin per unit to 2 decimal places.

Break-even point in sales
Break-even point in units

Steph has proposed a plan to get cozy cafe out of the red and improve its profitability. She feels that the quality of the product could be greatly improved by spending $0.30 more per unit on better raw materials. The selling price per unit could increase to only $5.30 because of competitive pressures. Steph estimates that sales volume will increase by 25%.

ii) Calculate the break-even point in total sales dollars and in units under the proposed plan. Ensure to round contribution margin per unit and contribution margin ratio to 2 decimal places.

Break-even point in sales
Break-even point in units

What effect would Stephs plan have on the Cafe's operating income and its break-even point in dollars? Fill the chart below with the correct answers

This plan would (have or have no) effect on the break-even point in units, but (increases or decreases) break-even point in sales dollars because of the (higher or lower) selling price.

It (decreases or increases) the operating income before tax from a (profit or loss) of _______$ to an (operating income after tax or operating income before tax) of __________$

Nat thinks that the sales volume can be increased only by intensive advertising and promotional campaigns. proposed an alternative to Steph's plan: Increase variable selling expenses to $0.54 per unit, lower the selling price per unit by $0.30, and increase fixed selling expenses by $33,600. Nat thinks that sales volume would increase by 60% if these changes were made. Calculate Nats break-even point in dollars and units. Ensure to round contribution margin per unit and contribution margin ratio to 2 decimal places.

Break-even point in sales
Break-even point in units

Which plan should be accepted?