The condensed income statement for the Steve and Roz partnership for 2020 is as follows:

Steve and Roz Company Income Statement For the Year Ended December 31, 2020

Sales (240,000units) $ 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 behavior analysis indicates the 72% of the cost of good sold are variable, 36% of the selling expenses are variable, and 30% of the administrative expenses are variable.

REQUIRED:

Using the CVP income statement format to compute profits and rounding to the nearest unit, dollar, and percentage, clearly respond to the questions below:

1. Compute the break-even point in total sales dollars and in units for 2020.
2. Steve has proposed a plan to get the partnership out of the red and improve profitability. He believes the quality of the product could be substantially improved by spending $.30 more per units on better raw materials. The selling price per unit could be increase to only $5.50 because of competitive pressures. Steve estimates that sales volume will increase by 30%. What effect would Steves plan have on the profits and the break-even point in dollars of the partnership? (round the contribution margin ratio to two decimal places.)
3. Roz was a marketing student in college. She believes that sales volume can be increase only by intensive advertising and promotional campaigns. She therefore proposes the following plan as an alternative to Steves: (1) increase variable selling expenses to $0.62 per unit, (2) lower the selling price per unit by $0.15, and (3) increase fixed selling expense by $45,000. Roz quoted an old marketing research report that said that sales volume would increase by 60% if these changes were made. What effect would Rozs plan have on the profits and the break-even point in dollars of the partnership?
4. Which plan should be accepted? Explain you answer.