Nighthawk Companys Income Statement for the Year Ended December 31, 2021

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

Cost of goods sold 700,000

Gross profit 500,000

Operating expenses

Selling $300,000

Administrative 275,000 575,000

Net loss $ (75,000)

A cost behavior analysis indicates that 70% of the cost of goods sold are variable, 45% of the selling expenses are variable, and 40% of the administrative expenses are variable.

Rounding Instructions -Round FINAL variable cost to 2 decimal, FINAL break even answers to unit and dollar.

Format: Prepare parts B and C in CVP income statement format and show all computations using formulas in excel or google sheets for ALL calculations.

1. Using the income statement above, compute the break-even point in total sales dollars and in units for 2021.

2.

PLAN A - Tom has proposed a plan to improve its profitability. Tom 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 $6.25. Tom estimates that sales volume will increase by 20%. Compute net income under Toms proposal and the break-even point in dollars.

(DO NOT Round the contribution margin ratio.)

3.

PLAN B - Jill was a sales and marketing major in college. Jill believes that sales volume can be increased only by an intensive advertising and promotional campaign. She proposed the following plan as an alternative to Toms: (1) increase variable selling expenses to $0.70 per unit, (2) increase the selling price per unit by $0.40, and (3) increase fixed selling expenses by $50,000. Jill based her recommendations based on an old marketing research report that said that sales volume would increase by 30% if these changes were made. Compute net income under Jills proposal and the break-even point in dollars.

(DO NOT Round the contribution margin ratio.)

4.

Which plan do you believe should be accepted and why? Using good written communication, completely and thoroughly explain your answer.