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.)

(a)

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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

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(b)

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 $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. 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 0 decimal places, e.g. 5,275.)

Break-even point in sales		$
Break-even point in units

What effect would Phans plan have on the partnerships profits and its break-even point in dollars?

This plan would have nohave effect on the break-even point in units, but decreasesincreases break-even point in sales dollars because of the higherlower selling price.

It decreasesincreases the operating profit before tax from a lossprofit of $ to a lossprofit of $ .

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