Analyze two managerial plans

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Reference no: EM1349517

Income statement

For the year ended December 31, 2008

Sales (200, 000 units) 1,200,000
Cost of goods sold 800,000
Gross Profit 400,000
Operating Expense
Selling 280,000
Administrative 160,000 440,000
Net loss $40,000

A cost behavior analysis indicates that 75% of the cost of goods sold are variable. 50% of the selling expenses are variable, and 25% of the administrative expenses are variable.

1c. Jerry was a marketing major in college. He believes that sales volumes can be increased only by intensive advertising and promotional campaigns. He therefore proposed the following plan as an alternative to Terri's (1) Increase variable selling expenses to $0.79 per unit, (2) lower the selling price per unit by $.30, and (3) increase fixed selling expenses by $35,000. Jerry quoted an old marketing research report that said that sales volume would increase by 60% if these changes were made. What effect would Jerry's plan have on the profits and the break-even point in dollars of the partnership? Explain which plan should be accepted? Why?

Reference no: EM1349517

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