An income statement for James & Justice Enterprises is presented below:
James & Justice Enterprises
Income Statement
For the Year Ended January 31, 2016
Sales (300,000 units) $ 1,800,000
Variable Expenses:
Cost of Goods Sold $ 900,000
Selling Expenses 225,000
Administrative Expense 150,000 1,275,000
Contribution Margin 525,000
Fixed Costs:
Cost of Goods Sold 300,000
Selling Expenses 242,400
Administrative Expense 100,000 642,400
Net Loss $ ( 117,400)
INSTRUCTIONS:
1. Compute the break-even in total sales dollars and in units for 2016.
2. Justice has proposed a plan to get the enterprise on a profitable level. He proposes to improve the quality of the product by spending $0.30 more on raw materials.
The selling price per unit would be increased to by $0.35. The sales volume would increase by 25%. How would this proposal affect profits and break-even in dollars?
3. James want to improve profits via marketing, i.e., advertising and promotions. His plan is to increase selling expense by $0.15, lower the selling price by $0.35 per unit, and increase fixed selling expenses by $40,000. More importantly, James believes the sales volume would increase by 60% if these changes are made.
How would James' proposal affect profits and break-even in dollars?
4. Which plan do you recommend and why?