Reference no: EM133007647
Questions -
Q1. The condensed income statement for the Mary and John partnership for 2022 is as follows.
Mary and John Company Income Statement For the Year Ended December 31, 2020
Sales (192,000 units) $960,000
Cost of goods sold 640,000
Gross profit 320,000
Operating expenses Selling $240,000
Administrative 122,000 362,000
Net loss $(42,000)
A cost behavior analysis indicates that 75% of the cost of goods sold are variable and 40% of the selling expenses are variable. Administrative expenses are $74,000 fixed.
Required - Compute the break-even point in total sales dollars for 2022.
Q2. Mary 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 $0.32 more per unit on better raw materials. The selling price per unit could be increased to only $5.25 because of competitive pressures. Mary estimates that sales volume will increase by 25%. Compute the net income under Mary's proposal and the break-even point in dollars.
Q3. John 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 Mary's: (1) increase variable selling expenses to $0.575 per unit, (2) lower the selling price per unit by $0.25, and (3) increase fixed selling expenses by $40,800. John quoted an old marketing research report that said that sales volume would increase by 60% if these changes were made. Compute the net income under John's proposal and the break-even point in dollars.