Julia and John are two friends that formed a partnership which will start operations at the...
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Julia and John are two friends that formed a partnership which will start operations at the end of 2021. They are going to sell a type of cosmetics product. For 2022 their condensed budgeted income statement is as follows: JUNIPER LTD Budgeted Income Statement Year Ending December 31, 2022 Sales (495,000 units) $2,722,500 Cost of goods sold $2,350,000 Gross Profit $350,000 Operating Expenses Selling $450,000 Administrative $125,000 Operating Loss $(202,500) According to their analysis: 1) 55% of the cost of goods sold is variable (the rest is fixed cost) 2) 35% of the selling expenses is variable (the rest is fixed cost) 3) 50% of the administrative expenses is variable (the rest is fixed cost) 1/3 4) The industry market potential is 15 million households. 5) Each household that demands, will buy 6 units per year. 6) According to the budgeted income statement Julia and John expect to capture a market share of 0.55%. 7) The average selling price is $5.50 per unit in 2022. Questions: (Round to nearest unit, dollar, and percentage, where necessary. Use the CVP income statement format in calculating profits.) a) For 2022 calculate the contribution margin %, contribution margin/unit, break-even point in total sales dollars and in units for Julia and John. b) As you can see from the budgeted income statement, they are making loss in 2022. Julia 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 (VC) per unit on better raw materials. The selling price per unit could be increased to only $6.00 because of competitive pressures. Julia estimates that market share will increase to 0.75%. What effect would Julia's plan have on the partnership's profits and its break-even point in dollars & in units? c) John was a marketing major in university. He believes that the market share can be increased only by intensive advertising and promotional campaigns. He therefore proposed the following plan as an alternative to Linda's: (1) increase the variable selling costs which will then increase the total variable unit cost to $3.50 (2) increase the selling price per unit to $6.25, and (3) increase fixed selling expenses by $75,000. John also quoted a marketing research report that says market share would increase if these changes were made (according to John new market share will be 1% after intensive advertising and promotional campaigns). What effect would John's plan have on the partnership's profits and its break-even point in dollars & in units? Julia and John are two friends that formed a partnership which will start operations at the end of 2021. They are going to sell a type of cosmetics product. For 2022 their condensed budgeted income statement is as follows: JUNIPER LTD Budgeted Income Statement Year Ending December 31, 2022 Sales (495,000 units) $2,722,500 Cost of goods sold $2,350,000 Gross Profit $350,000 Operating Expenses Selling $450,000 Administrative $125,000 Operating Loss $(202,500) According to their analysis: 1) 55% of the cost of goods sold is variable (the rest is fixed cost) 2) 35% of the selling expenses is variable (the rest is fixed cost) 3) 50% of the administrative expenses is variable (the rest is fixed cost) 1/3 4) The industry market potential is 15 million households. 5) Each household that demands, will buy 6 units per year. 6) According to the budgeted income statement Julia and John expect to capture a market share of 0.55%. 7) The average selling price is $5.50 per unit in 2022. Questions: (Round to nearest unit, dollar, and percentage, where necessary. Use the CVP income statement format in calculating profits.) a) For 2022 calculate the contribution margin %, contribution margin/unit, break-even point in total sales dollars and in units for Julia and John. b) As you can see from the budgeted income statement, they are making loss in 2022. Julia 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 (VC) per unit on better raw materials. The selling price per unit could be increased to only $6.00 because of competitive pressures. Julia estimates that market share will increase to 0.75%. What effect would Julia's plan have on the partnership's profits and its break-even point in dollars & in units? c) John was a marketing major in university. He believes that the market share can be increased only by intensive advertising and promotional campaigns. He therefore proposed the following plan as an alternative to Linda's: (1) increase the variable selling costs which will then increase the total variable unit cost to $3.50 (2) increase the selling price per unit to $6.25, and (3) increase fixed selling expenses by $75,000. John also quoted a marketing research report that says market share would increase if these changes were made (according to John new market share will be 1% after intensive advertising and promotional campaigns). What effect would John's plan have on the partnership's profits and its break-even point in dollars & in units?
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To further analyze the budgeted income statement for Juniper Ltd we need to calculate the variable a... View the full answer
Related Book For
International Marketing And Export Management
ISBN: 9781292016924
8th Edition
Authors: Gerald Albaum , Alexander Josiassen , Edwin Duerr
Posted Date:
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