Broadening Your Perspective 5-2 (Part Level Submission) The condensed income sta

Question

Broadening Your Perspective 5-2 (Part Level Submission) The condensed income statement for the Peri and Paul partnership for 2017 is as follows. PERI AND PAUL COMPANY For the Year Ended December 31, 2017 $1,200,000 800,000 400,000 Sales (240,000 units) Cost of goods sold Gross profit Operating expenses Selling Administrative $280,000 150,000 3,000 Net loss $(30,000) A cost behavior analysis indicates that 75% of the cost of goods sold are variable, 44% of the selling expenses are variable, and 44% of the administrative expenses are variable. (Round to nearest unit, dollar, and percentage, where necessary. Use the CVP income statement format in computing profits.) Your answer is partially correct. Try again Compute the break-even point in total sales dollars and in units for 2017. (Round intermediate calculations to 2 decimal places, e.g. 0.25 and final answers to 0 decimal places, e.g. 2,520.) Break-even point in dollars 1287759 Break-even point in units 257778 units

Explanation / Answer

(a) Calculation of break even point of sales

Workings required to calculate Variable and fixed cost :

Break even point calculation as follows :

* Sales = 257778 units * $5 per unit

**Cost of goods sold = 257778 * $ 2.5(variable cost) + $200000(fixed cost)

Therefore , break even point in sales = $ 12,88,890

(b) Calculation of profit taken sales price as 5.25 , units = 240000*120% = 288000 , Cost of good sold per unit = 2.75

Therefore , profit will increase and Break even point will have no effect as sale price is increased by $ 0.25 and raw material cost also increased by $ 0.25.

Effect plan of profit is profit is increasing by $ 81730 and break even point will remain unchanged.

(c) Calculation of profit taken changes as suggested by paul

Therefore effect of Pauls plan of profit is profit is increasing by $ 52 , 338 and break even point will increase by units 100012 i.e by $ 410613 .

(d) Profitablility is high in Peris plan , Hence Peri's plan should be accepted.

Profitablility is increasing as per Peris plan without change in break even point of sales.

Particulars Units Total Cost/Sales Cost/Price Per unit Variable Cost Variable cost per unit Fixed Cost (a) (b) - Given (c') = (b)/(a) (d) (e')= (d)/(a) (f)= (b) - (d) Sales 240000 1200000                               5.00 Cost of goods sold 240000 800000                               3.33 600000                                     2.50          200,000 Gross profit 240000 400000                               1.67 Operating expenses selling expenses 240000 280000                               1.17 123200                                     0.51 156800 admininistrative expenses 240000 150000                               0.63 66000                                     0.28 84000 Net loss 240000 -30000

Break even point calculation as follows :

Particulars Total amount Sales*        1,288,890 Cost of goods sold**            844,875 Gross profit            444,015 Operating expenses selling expenses***            289,126 admininistrative expenses****            154,889 Net loss                         0

* Sales = 257778 units * $5 per unit

**Cost of goods sold = 257778 * $ 2.5(variable cost) + $200000(fixed cost)

***Selling expenses = 257778 * $ 0.51(variable cost) + $156800(fixed cost) ****Administrative expenses = 257778 * $ 0.28 (variable cost) + $84000(fixed cost)

Therefore , break even point in sales = $ 12,88,890

(b) Calculation of profit taken sales price as 5.25 , units = 240000*120% = 288000 , Cost of good sold per unit = 2.75

Particulars Total amount Sales        1,512,000 Cost of goods sold            992,430 Gross profit            519,570 Operating expenses selling expenses            304,640 admininistrative expenses            163,200 Net proft              51,730

Therefore , profit will increase and Break even point will have no effect as sale price is increased by $ 0.25 and raw material cost also increased by $ 0.25.

Effect plan of profit is profit is increasing by $ 81730 and break even point will remain unchanged.

(c) Calculation of profit taken changes as suggested by paul

Particulars Total amount Sales        1,778,400 Cost of goods sold        1,136,430 Gross profit            641,970 Operating expenses selling expenses            432,672 admininistrative expenses            186,960 Net proft              22,338

Therefore effect of Pauls plan of profit is profit is increasing by $ 52 , 338 and break even point will increase by units 100012 i.e by $ 410613 .

Particulars Total amount Sales        1,699,503 Cost of goods sold        1,094,905 Gross profit            604,598 Operating expenses selling expenses            422,208 admininistrative expenses            182,392 Net proft                      (2)

(d) Profitablility is high in Peris plan , Hence Peri's plan should be accepted.

Profitablility is increasing as per Peris plan without change in break even point of sales.

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