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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 Administrative $280,000 160,000 440,000 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.) (c) Jerri was a marketing major in college. She believes that sales volume can be increased only by intensive advertising and promotional campaigns. She therefore proposed the following plan as an alternative to Terri's. (1) Increase variable selling expenses to $0.79 per unit, (2) lower the selling price per unit by $0.30, and (3) increase fixed selling expenses by $35,000. Jerri quoted an old marketing research report that said that sales volume would increase by 60% if these changes were made. What | effect would Jerri'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

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 Administrative $280,000 160,000 440,000 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.) (c) Jerri was a marketing major in college. She believes that sales volume can be increased only by intensive advertising and promotional campaigns. She therefore proposed the following plan as an alternative to Terri's. (1) Increase variable selling expenses to $0.79 per unit, (2) lower the selling price per unit by $0.30, and (3) increase fixed selling expenses by $35,000. Jerri quoted an old marketing research report that said that sales volume would increase by 60% if these changes were made. What | effect would Jerri'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

Survey of Accounting (Accounting I)
Survey of Accounting (Accounting I)
8th Edition
ISBN:9781305961883
Author:Carl Warren
Publisher:Carl Warren
Chapter9: Metric-analysis Of Financial Statements
Section: Chapter Questions
Problem 9.2.1P
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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 Administrative $280,000 160,000 440,000 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.) (c) Jerri was a marketing major in college. She believes that sales volume can be increased only by intensive advertising and promotional campaigns. She therefore proposed the following plan as an alternative to Terri's. (1) Increase variable selling expenses to $0.79 per unit, (2) lower the selling price per unit by $0.30, and (3) increase fixed selling expenses by $35,000. Jerri quoted an old marketing research report that said that sales volume would increase by 60% if these changes were made. What | effect would Jerri'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
Transcribed Image Text: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 Administrative $280,000 160,000 440,000 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.) (c) Jerri was a marketing major in college. She believes that sales volume can be increased only by intensive advertising and promotional campaigns. She therefore proposed the following plan as an alternative to Terri's. (1) Increase variable selling expenses to $0.79 per unit, (2) lower the selling price per unit by $0.30, and (3) increase fixed selling expenses by $35,000. Jerri quoted an old marketing research report that said that sales volume would increase by 60% if these changes were made. What | effect would Jerri'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
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