CT5.2 The condensed income statement for the Peri and Paul partnership for 2022 is as follows.

Peri and Paul Company Income Statement For the Year Ended December 31, 2022

Sales (240,000 units). $1,200,000

Cost of goods sold. 800,000

Gross profit 400,000

Operating expenses

Selling. $300,000

Administrative 152,500 452,500

Net loss. $ (52,500)

A cost behavior analysis indicates that 75% of the cost of goods sold are variable and 40% of the selling expenses are variable. Administrative expenses are $92,500 fixed. Instructions (Round to nearest unit, cent, and percentage, where necessary. Use the CVP income statement format in computing net income.)

A) Compute the break-even point in sales dollars and in sales units for 2022.

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 $0.32 more per unit on better raw materials. The unit selling price could be increased to $5.25. Peri estimates that sales volume would increase by 25%. Compute net income under Peris proposal and the break-even point in sales dollars.

C) Paul was a marketing major in college. He believes sales volume can only be increased by intensive advertising and promotional campaigns. He, therefore, proposed the following plan as an alternative to Peris: (1) increase unit variable selling expenses to $0.575, (2) lower the unit selling price by $0.25, and (3) increase fixed selling expenses by $51,000. Paul quoted an old marketing research report that said that sales volume would increase by 60% if these changes were made. Compute net income under Pauls proposal and the break-even point in sales dollars.

D) Which plan should be accepted? Explain your answer.