Sandhill 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. Sandhill estimates that sales volume will increase by 25%. Compute the net income under Sandhill's proposal and the break-even point in dollars.

Compute net income and break-even point under Sandhill's proposal

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 Sandhills: (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 Pauls proposal and the break-even point in dollars.

Compute net income and break-even point under Paul's proposal

Expand Your Critical Thinking 18-02 The condensed income statement for the Sandhill and Paul partnership for 2020 is as follows. Sandhill and Paul Company Income Statement For the Year Ended December 31, 2020 Sales (300,000 units) $1,500,000 Cost of goods sold 1,040,000 Gross profit 460,000 Operating expenses Selling $350,000 Administrative 157,500 507,500 Net loss $(47,500) 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