Working Note-1: Current situation

Particulars	Amount($)	Amount($)
Sales		1200000
Less: Variable Cost
1. Cost of goods sold	490000
2. Selling Expenses	135000
3. Administrative Expenses	110000	735000
Contribution		465000
Units		200000
Contribution per unit		2.325
Fixed Cost	540000

Net Income= 4,65,000-5,40,000=-$75000

Break even point= Fixed cost/contribution per unit= 5,40,000/2.325= 2,32,258 units

PLAN A - Tom has proposed a plan to improve its profitability. Tom 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 $6.25. Tom estimates that sales volume will increase by 20%. Compute net income under Toms proposal and the break-even point in dollars.

PLAN-A income statement

Particulars	Amount($)	Amount($)
Sales		1500000
Less: Variable Cost
1. Cost of goods sold	648000
2. Selling Expenses	162000
3. Administrative Expenses	132000	942000
Contribution		558000
Units		240000
Contribution per unit		2.325
Fixed Cost		540000
Net Income	18000

Break even point = Fixed cost/contribution per unit= 5,40,000/2.325= 2,32,258 units

PLAN B - Jill was a sales and marketing major in college. Jill believes that sales volume can be increased only by an intensive advertising and promotional campaign. She proposed the following plan as an alternative to Toms: (1) increase variable selling expenses to $0.70 per unit, (2) increase the selling price per unit by $0.40, and (3) increase fixed selling expenses by $50,000. Jill based her recommendations based on an old marketing research report that said that sales volume would increase by 30% if these changes were made. Compute net income under Jills proposal and the break-even point in dollars.

PLAN-B income statement

Particulars	Amount($)	Amount($)
Sales		1664000
Less: Variable Cost
1. Cost of goods sold	637000
2. Selling Expenses	182000
3. Administrative Expenses	143000	962000
Contribution		702000
Units		260000
Contribution per unit		2.7
Fixed Cost		590000
Net Income	112000

.

Break even point = Fixed cost/contribution per unit= 5,90,000/2.70=2,18,518.51 units

Which plan do you believe should be accepted and why? Using good written communication, completely and thoroughly explain your answer.?

Nighthawk Company's Income Statement for the Year Ended December 31, 2021 Sales (200,000 units) $1,200,000 Cost of goods sold 700,000 Gross profit 500,000 Operating expenses Selling $300,000 Administrative 275,000 575,000 Net loss $ (75,000) A cost behavior analysis indicates that 70% of the cost of goods sold are variable, 45% of the selling expenses are variable, and 40% of the administrative expenses are variable. Nighthawk Company's Income Statement for the Year Ended December 31, 2021 Sales (200,000 units) $1,200,000 Cost of goods sold 700,000 Gross profit 500,000 Operating expenses Selling $300,000 Administrative 275,000 575,000 Net loss $ (75,000) A cost behavior analysis indicates that 70% of the cost of goods sold are variable, 45% of the selling expenses are variable, and 40% of the administrative expenses are variable