Question

Expand Your Critical Thinking 18-02 The condensed income statement for the Carla Vista and Paul partnership for 2020 is as follows. Carla Vista and Paul Company Income Statement For the Year Ended December 31, 2020 Sales (270,000 units) $1,350,000 Cost of goods sold 900,000 Gross profit 450,000 Operating expenses Selling $270,000 Administrative 189,000 459,000 Net loss $(9,000 ) 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.

Compute the break even point in total sales dollars for 2020. (not 1430555 already tried that number)

Break-even point in dollars: ____

Carla Vista 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. Carla Vista estimates that sales volume will increase by 25%.

Compute the net income under Carla Vista's proposal and the break-even point in dollars. (Not 176905 / 1502083 already tried those numbers)

		Amount
Net income		$
Break-even point		$

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 Carla Vista’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 $46,000. 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.

		Amount
Net income		$
Break-even point		$

Answer 1

Net income is net profit given in the solution.

For Carla

sales = 270000x 125%x 5.25 = 1771875

new cost per unit raw material = 2.75

For paul

sales = 270000 x 160% x 4.75 = 2052000

432000 sales - 2.5 COGS Less: variable coste selling expenses Admin. cxpenses - Contribution - Less: Fixed costs cogs Pocunie 1970000 und 347500 unite 1350000 771875 2052.000 6750009881 as 1080000 10.42 113400 141750 9.54880 1 75600 au soo 120960 4,86000 607500 596160 2250 od 225000 156600] 156600 113400 113400 219000) 112500 selling Exp. Admin Expenses Net profit / Loss 225000 20 2600 113400 55160 - - Total fired Court contribution sacer - BEP - Total Fixed costs of Contribution per unit sales per unit 3 - 495000 350000 4186000 1375000 - & 69 - 49 5000x177/ 875 - 60 7500 43750 - ③ B.EP = 541000 X 2052000 596160 = $1862 138