b)

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 25%. What effect would Peri's plan have on the profits and the break-even point in dollars of the partnership? (Round the contribution margin ratio to two decimal places.)

(c)

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 60% 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?

Chapter 18: Page 980: BYP18-3 The condensed income statement for the Peri and Paul partnership for 2014 is as follows. PERI AND PAUL COMPANY Income Statement For the Year Ended December 31, 2014 S 1,200,000 Sales (240,000 units) 800,000 Cost of goods sold Gross profit 400,000 Operating expenses Selling 280,000 150,000 Administrative 430,000 Net loss (30,000) A cost behavior analysis indicates that 75% of the cost of goods sold are variable, 42% of the selling expenses are variable, and 40% of the administrative expenses are variable. Instructions (Round to nearest unit, dollar, and percentage, where necessary. Use the CVP income statement format in computing profits.)