The condensed income statement of the Peri & Paul partnership for the year 2017 is as follows:

Peri & Paul Company

Income status

For the year ended December 31, 2017

Sales (240,000 units) $1,200,000

Cost of goods sold (COGS) 800,000

Gross Profit 400,000

Operational expenses:

Selling expenses $280,000

Administrative Expenses $150,000 430,000

Net loss ($30,000)

An analysis of the behavior of costs indicates that the following are variables: 75% of the cost of goods sold, 50% of selling expenses, and 25% of administrative expenses.

Case instructions:

Round to the nearest unit, nearest percentage, or nearest dollar, or to the nearest percentage. Submit the income statement in the cost-volume-profit (CVP) format, with the computation of profits.

A.Calculate the breakeven point (Break-Even Point -BEP-) of sales in units and in dollars for the year 2017.

B.Peri has proposed a plan to get the company out of losses and improve its profitability. She believes that product quality could be greatly improved by paying $0.25 more for each unit of a better direct material. The selling price per unit could be increased to only $5.25 per unit, due to competitive pressure. Peri estimates that sales volume could increase 25%. What would be the effect of the changes planned by Peri's plan on the dollar break-even point and the partnership's profits? (Round the contribution margin ratio to two decimal places.)

C. Paul's concentration in her high school was in marketing. He believes that sales volume can only be increased with an intensive advertising campaign, therefore, he proposed the following plan as an alternative to Peri's: (1) increase variable selling expenses to $0.59 per unit; (2) reduce the selling price per unit by $0.25, and (3) increase fixed selling expenses by $40,000. Paul cited an old marketing report that said sales would increase by 60%. If these changes were made, what would be the effect of the proposed changes in Paul's plan on the dollar break-even point and the partnership's profits?

D.Which plan should be accepted? Explain, argue and justify your answer.