Broadening Your Perspective 5-2 (Part Level Submission)

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)$1,200,000Cost of goods sold800,000Gross profit400,000Operating expensesSelling$280,000Administrative150,000430,000Net loss$(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 ______________

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 (increase or decrease

Profit $__________ __________

Break-even point $___________ _____________

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 (increase or decrease)

Profit $_______ __________

Break-even point$_______ __________