How to calclate net income and break-even point? Crane has proposed a plan to get the...

How to calclate net income and break-even point? Crane 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. Crane estimates that sales volume will increase by 25%. Compute the net income under Crane's proposal and the break-even point in dollars.

Expert Solution

Answers:-

1. The net loss changed to a net profit of $75,600 with the proposed change.

2. Break-Even Sales $1,285,227

Explanations :-

1. The net loss changed to a net profit of $75,600 with the proposed change.

2. Break even Sales = Fixed Cost / Contribution margin %

Case 1: Before change

Fixed Cost = $452,400

Contribution Margin % = (Contribution / Sales) x 100 = ($422,400 / 1,200,000) x 100 = 35.2%

Break even Sales = $452,400 / 35.2% = $1,285,227 (Rounded off)

jeff jeffy answered 2 years ago

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