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##### PERI AND PAUL Company_CVP Analysis

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Question;The condensed income;statement for the Peri and Paul partnership for 2014 is as follows.;PERI AND PAUL Company;Income Statement;For the year ended December 31, 2014;Sales (240,000 units) \$1,200,000;Cost of goods sold;800,000;Gross Profit 400,000;Operating Expenses;Selling 280,000;Administrative 150,000 430,000;Net loss (\$30,000);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.;Instructions;(Round to nearest;unit, dollar, and percentage, where necessary. Use the CVP income statement;format in computing profits.);(a) Compute the;break-even point in total sales dollars and in units for 2014.;(b) Peri has;proposed a plan to get the partnership?oout 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. Peri estimates that sales volume will increase by 25%. What effect;would Peri?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) 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 Peri?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. What;effect would Paul?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.

Paper#37421 | Written in 18-Jul-2015

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