Question

show computations

     Vera Bradley Inc. reports the following results for the month of June:

       Sales Revenue (20,000 units)        $1,200,000

       Variable costs                         800,000                                          

       Fixed costs                            300,000   

       Net income                           $ 100,000   

     Management of Vera Bradley has been assessing possible course of action and have developed the following independent scenarios to pursue:

     1. Reduce variable costs to 63% of sales.  

     2. Reduce fixed costs by $30,000.

     3. Increase selling price by 4% with no change in total variable costs.

     Instructions

     Vera Bradley would like to select the scenario that would result in the

    highest net income. Which scenario would you recommend and why? You must

    show computations for each one and then state your conclusion.

Answer 1

In Scenario -3 having the highest net income compare to other scenario, so Vera Bradley
should like to select the scenario - 3
	Current	Percent		Scenario-1		Scenario-2		Scenario-3
Sales (20,000 units)	$1,200,000	100%		$1,200,000		$1,200,000		$1,248,000
Variable costs	$800,000	67%		$756,000		$800,000		$800,000
Contribution margin	$400,000	33%		$444,000		$400,000		$448,000
Fixed costs	$300,000	25%		$300,000		$270,000		$300,000
Net Income	$100,000	8%		$144,000		$130,000		$148,000
Working
Scenario-1
Variable costs = $1,200,000 x 63% = $756,000
Scenario-2
Fixed costs = $300,000 - $30,000 = $270,000
Scenario-3
Sales (20,000 units) = 20,000 x $60 x 1.04 = $1,248,000