Question

The condensed income statement for the Peri and Paul partnership for 2017 is as follows. PERI AND PAUL COMPANY Income Statement For the Year Ended December 31, 2017 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 behavior analysis indicates that 65% of the cost of goods sold are variable, 45% of the selling expenses are variable, and 44% of the administrative expenses are variable. (Round to nearest unit, dollar, and percentage, where necessary. Use the CVP income statement format in computing profits.) Collapse question part (a) Partially correct answer. Your answer is partially correct. Try again. Compute the break-even point in total sales dollars and in units for 2017. (Round intermediate calculations to 2 decimal places, e.g. 0.25 and final answers to 0 decimal places, e.g. 2,520.) Break-even point in dollars $Entry field with incorrect answer 1275860 Break-even point in units Entry field with correct answer 255172 units SHOW SOLUTION Attempts: 2 of 2 used Collapse question part (b) Partially correct answer. Your answer is partially correct. Try again. Peri 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. Peri estimates that sales volume will increase by 25%. What effect would Peri’s plan have on the profits and the break-even point in dollars of the partnership? Amount Effect Profit $Entry field with correct answer 88000 Entry field with correct answer Break-even point $Entry field with incorrect answer 1346287 Entry field with correct answer SHOW SOLUTION Attempts: 2 of 2 used Collapse question part (c) Partially correct answer. Your answer is partially correct. Try again. Paul was a marketing major in college. He believes that sales volume can be increased only by intensive advertising and promotional campaigns. He therefore proposed the following plan as an alternative to Peri’s: (1) increase variable selling expenses to $0.63 per unit, (2) lower the selling price per unit by $0.25, and (3) increase fixed selling expenses by $40,000. Paul quoted an old marketing research report that said that sales volume would increase by 56% if these changes were made. What effect would Paul’s plan have on the profits and the break-even point in dollars of the partnership? Amount Effect Profit $Entry field with incorrect answer Entry field with incorrect answer Break-even point $Entry field with incorrect answer Entry field with correct answer

Answer 1

Incme statement
No. of units	240000		per unit
Sales		$1,200,000	$5
Less; varaible expenses
Cost of good sold (800000*65%)	520000		2.17
Selling Expenses (280000*45%)	126000		0.525
Adminsitrative expenses (150000*44%)	66000		0.275
Total variable expenses		712000
Contribution margin		$488,000	$2.03
Contribution margin ratio			0.41
Less:
Fixed expenses
Cost of good sold (800000*35%)	280000
Selling Expenses (280000*55%)	154000
Adminsitrative expenses (150000*56%)	84000
Total fixed expenses		518000
Net operating income		($30,000)
Ans 1
Break even point in units
Fixed cost/CM per unit	255172	units
518000/2.03
Break even point in $	1263415	ans
Fixed cost/CM ratio
518000/.41
If we calculate as units*sales price	1275862	ans
255172*5
ans 2
Income statement
No. of units	300000		per unit
Sales (300000*5.25)		$1,575,000	$5.25
Less; varaible expenses
Cost of good sold (300000*2.17)+(300000*.25)	725000		2.17
Selling Expenses	157500		0.53
Adminsitrative expenses	82500		0.28
Total variable expenses		965000
Contribution margin		$610,000	$2.54
Contribution margin ratio			0.48
Less:
Fixed expenses
Cost of good sold (800000*35%)	280000
Selling Expenses (280000*55%)	154000
Adminsitrative expenses (150000*56%)	84000
Total fixed expenses		518000
Net operating income/Profits		$92,000
Break even point in $	1079167	ans
Fixed cost/CM ratio
518000/.48
ans 3
Income statement
No. of units	374400		per unit
Sales (374400*4.75)		$1,778,400	$4.75
Less; varaible expenses
Cost of good sold	811200		2.17
Selling Expenses	432432		1.16
Adminsitrative expenses	102960		0.28
Total variable expenses		1346592
Contribution margin		$431,808	$1.80
Contribution margin ratio			0.38
Less:
Fixed expenses
Cost of good sold (800000*35%)	280000
Selling Expenses (280000*55%)+40000	194000
Adminsitrative expenses (150000*56%)	84000
Total fixed expenses		558000
Net operating income/loss		($126,192)
Break even point in $	1468421	ans
Fixed cost/CM ratio
558000/.38
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