Question

Barnes Company reports the following operating results for the month of August: sales $325,000 (units 5,000); variable costs $213,000; and fixed costs $71,600. Management is considering the following independent courses of action to increase net income.

Compute the net income to be earned under each alternative.

1. Increase selling price by 10% with no change in total variable costs or sales volume.

Net income

$

2. Reduce variable costs to 58% of sales.

Net income

$

3. Reduce fixed costs by $24,000.

Net income

$

Answer 1

2 Selling price 3 Increases selling price 4 Sales 5 Variable costs 6 Fixed costs 7 Net income - 1 1 2 3 $ 65 $ 71.50 $ 357,500$ 325,000 $325,000 $ 213,000 $ 188,500 $ 213,000 $ 71,600 $ 71,600 $ 47,600 $ 72,900 $ 64,900 $ 64,400

2 Selling price =325000/5000 3 Increases selling price =+B2*110% 4 Sales =5000*B3 5 Variable costs 213000 6 Fixed costs 71600 7 Net income =+B4-B5-B6 325000 325000 =+C4*58% 213000 71600 =71600-24000 =+C4-C5-C6 =+D4-D5-D6