Question 4 The condensed budgeted income statement for the Phan and Nguyen partnership for 2020 is as follows: PHAN AND NGUYEN LLP Income Statement Year Ending December 31, 2020 Sales (240,000 units) $1,200,000 Cost of goods sold 800,000 Gross profit 400,000 Operating expenses Selling $280,000 Administrative 150,000 430,000 Net loss $(30,000) A cost behaviour analysis indicates that 75% of the cost of goods sold is variable, 42% of the selling expenses are variable, and 40% of the administrative expenses are variable. (Use the CVP income statement format in calculating profits.) Calculate the break-even point in total sales dollars and in units for 2020. (Round contribution margin per unit to 1.25, contribution margin ratio to 1 decimal place, e.g. 15.2% and final answers to o decimal places, e.g. 5,275.) $ Break-even point in sales - Break-even point in units LINK TO TEXT LINK TO TEXT LINK TO TEXT Phan 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 S0.25 more per unit on better raw materials. The selling price per unit could be increased to only $5.25 because of competitive pressures. Phan estimates that sales volume will increase by 25%. Calculate the break-even point in total sales dollars and in units under the proposed plan. (Round contribution margin per unit and contribution margin ratio to 2 decimal places, e.g. 15.25 or 15.25% and final answers to o decimal places, e.g. 5,275.) Break-even point in sales $ Break-even point in units What effect would Phan's plan have on the partnership's profits and its break-even point in dollars? decreases lower increases higher This plan would effect on the break-even point in units, but - break-even point in sales dollars because of the selling price. It ng profit before tax from a of s to a of $ have no decreases loss loss have wy 1 ! profit increases profit Nguyen was a marketing major in university. He believes that the sales volume can be increased only by intensive advertising and promotional campaigns. He therefore proposed the following plan as an alternative to Phan'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 540,000. Nguyen quoted an old marketing research report that said that sales volume would increase by 60% if these changes were made. Calculate Nguyen's break-even point in dollars and units. (Round contribution margin per unit and contribution margin ratio to 2 decimal places, e.g. 15.25 or 15.25% and final answers to 0 decimal places, e.g. 5,275.) 2 Break-even point in sales $ Phan plan Break-even point in units Nguyen's plan LINK TO TEXT LINK TO TEXT LINK TO TEXT Both the plans Determine which plan should be accepted. None of the plans should be accepted
