The condensed income statement for the Terri and Jerri partnership for 2010 is as follows. TERRI AND JERRI COMPANY Income Statement For the Year Ended December 31, 2010 Sales (200,000 units) Cost of goods sold $1,200,000 800,000 Gross Profit 400,000 Operating expenses Selling $280,000 Administrative 160,000 440,000 Net Loss ($40,000) A cost behavior analysis indicates that 75% of the cost of goods sold are variable, 50% of the selling expenses are variable, and 25% of the administrative expenses are variable. Instructions: (Round to nearest unit, dollar, and percentage, where necessary.) (a) Compute the break-even point in total sales dollars and in units for 2010. (b) Terri 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 $6.25 because of competitive pressures. Terri estimates that sales volume will increase by 30%. What effect would Terri'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.)
The condensed income statement for the Terri and Jerri partnership for 2010 is as follows. TERRI AND JERRI COMPANY Income Statement For the Year Ended December 31, 2010 Sales (200,000 units) Cost of goods sold $1,200,000 800,000 Gross Profit 400,000 Operating expenses Selling $280,000 Administrative 160,000 440,000 Net Loss ($40,000) A cost behavior analysis indicates that 75% of the cost of goods sold are variable, 50% of the selling expenses are variable, and 25% of the administrative expenses are variable. Instructions: (Round to nearest unit, dollar, and percentage, where necessary.) (a) Compute the break-even point in total sales dollars and in units for 2010. (b) Terri 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 $6.25 because of competitive pressures. Terri estimates that sales volume will increase by 30%. What effect would Terri'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.)
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter8: Inventories: Special Valuation Issues
Section: Chapter Questions
Problem 11RE: Johnson Corporation had beginning inventory of 20,000 at cost and 35,000 at retail. During the year,...
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