Question

question 1

Bonita Company reports the following operating results for the month of August: sales $320,000 (units 5,000); variable costs $210,000; and fixed costs $71,000. 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 $23,000. Senter a net income if the fixed costs are reduced by $23,000 Net income Alternative 1 Which course of action will produce the highest net income? e Textbook and Media Submit Answer Save for Later Attempts: 1 of 15 used

question 2

question 3

Answer 1

Note - you have asked two questions but we are supposed to answer only first one so I am answering it.

Question 1.

Existing net income = $320000 - $210000 - $71000 = $39000

Alternative 1

Increase in sales amount = $320000*10% = $32000 since there is no change in units , other amount will be same.

Hence new net income = $39000 + $32000 = $71000

Alternative 2

New variable cost = $320000*58% = $185600

New net income = $320000 - $185600 - $71000 = $63400

Alternative 3.

Reduction in fixed cost = $23000

New net income = $39000 + $23000 = $62000

Hence alternative 1 will generate highest net income.

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