Question
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)
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 | ||
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Break-even point in units |
Which plan should be accepted?
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