Reference no: EM132752275

Question: (a) Compute the break-even point in total sales dollars and in units for 2016.

(b) Terry 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 $6.25 because of competitive pressures. Terry estimates that sales volume will increase by 30%. What effect would Terry's plan have on the profits and the break-even point in dollars of the partnership? (round the contribution margin ratio to two decimal places.)

(c) Jerry was a marketing major in college. She believes that sales volume can be increased only by intensive advertising and promotional campaigns. She therefore proposed the following plan as an alternative to Terry's. (1) Increase variable selling expenses to $0.79 per unit, (2) lower the selling price per unit by $0.30, 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?

(d) Which plan should be accepted? Explain your answer.

(e) Terry has another trading business that is expecting to sell 1,250 units of products at $12 per unit, and break-even sales for the product are $12,000.

(i) What is the margin of safety ratio?

(ii) What does this ratio mean to this business?