Reference no: EM132513368

Question - The condensed income statement for the Blossom and Paul partnership for 2020 is as follows.

Blossom and Paul Company Income Statement For the Year Ended December 31, 2020

Sales (250,000 units) $1,250,000

Cost of goods sold 900,000

Gross profit 350,000

Operating expenses

Selling $250,000

Administrative 112,500 362,500

Net loss $(12,500)

A cost behavior analysis indicates that 75% of the cost of goods sold are variable, 42% of the selling expenses are variable, and 40% of the administrative expenses are variable.

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 Blossom's: (1) increase variable selling expenses to $0.59 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 60% if these changes were made. Compute the net income under Paul's proposal and the break-even point in dollars.