Question
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
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 0 decimal places, e.g. 5,275.)
Break-even point in sales | $ | ||
Break-even point in units |
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 Phans: (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. Nguyen quoted an old marketing research report that said that sales volume would increase by 60% if these changes were made. Calculate Nguyens 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.)
Break-even point in sales | $ | ||
Break-even point in units |
Determine which plan should be accepted.
Phans plan,Nguyen's plan, Both plans or None of the plans should be accepted. |
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