Expand Your Critical Thinking 18-02

The condensed income statement for the Carla Vista and Paul partnership for 2020 is as follows.

Carla Vista and Paul Company Income Statement For the Year Ended December 31, 2020
Sales (270,000 units)				$1,350,000
Cost of goods sold				900,000
Gross profit				450,000
Operating expenses
Selling		$270,000
Administrative		189,000
				459,000
Net loss				$(9,000	)

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.

Compute the break even point in total sales dollars for 2020. (not 1430555 already tried that number)

Break-even point in dollars: ____

Carla Vista 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. Carla Vista estimates that sales volume will increase by 25%.

Compute the net income under Carla Vista's proposal and the break-even point in dollars. (Not 176905 / 1502083 already tried those numbers)

		Amount
Net income		$
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 Carla Vistas: (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 $46,000. Paul quoted an old marketing research report that said that sales volume would increase by 60% if these changes were made.

Compute the net income under Pauls proposal and the break-even point in dollars.

		Amount
Net income		$
Break-even point		$