Expand Your Critical Thinking 18-02

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

Blossomand Paul Company

Income Statement

For the Year Ended December 31, 2020

Sales (250,000 units)

$1,250,000

Cost of goods sold

900,000

Gross profit

350,000

Operating expenses

Selling

$250,000

Administrative

112,500

362,500

Net loss

$(12,500)

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.

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 Blossom'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. Compute the net income under Paul's proposal and the break-even point in dollars.(Round intermediate calculations to 4 decimal places, e.g. 15.2515 and final answers to 0 decimal places, e.g. 2,520.)

Amount

Net income

$

Break-even point

$