Question

Sunland Company reports the following operating results for the month of August: sales $382,500 (units 5,100), variable costs $259,000, and fixed costs $99,000. Management is considering the following independent courses of action to increase net income.

1. Increase selling price by 12% with no change in total variable costs or units sold.

2. Reduce variable costs to 65% of sales.

Compute the net income to be earned under each alternative.

1.		Net Income		$
2.		Net Income		$

Which course of action will produce the higher net income? select an option: Alternative One or Alternative two

Answer 1

1
Sales revenue	428400	=382500*1.12
Less: Variable costs	259000
Less: Fixed costs	99000
Net Income	70400
2
Sales revenue	382500
Less: Variable costs	248625	=382500*65%
Less: Fixed costs	99000
Net Income	34875
3
Alternative One will produce the higher net income.