Compute the net income under sunland proposal

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

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

Sales (240,000 units)


$1,200,000

Cost of goods sold


800,000

Gross profit


400,000

Operating expenses



Selling

$280,000


Administrative

156,000




436,000

Net loss


$(36,000)

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.

Sunland 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. Sunland estimates that sales volume will increase by 25%. Compute the net income under Sunland's proposal and the break-even point in dollars.

Reference no: EM133174024

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