Question

Exercise 19-3 Barnes Company reports the following operating results for the month of August: sales $315,000 (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 incomes 2. Reduce variable costs to 59% of sales. Net incomes 3. Reduce fixed costs by $24,000. Net incomes Which course of action will produce the highest net income?

Answer 1

Alternative 1 Current Selling price New Selling price $ Alternative 2 63.00 315000/5000 Current Variable costs 69.30 63+63*10% New Variable Costs $ 2,13,000.00 $ 1,85,850.00 315000*59% Alternative 3 Current Fixed costs New Variable Costs $ $ 71,600.00 47,600.00 71600-24000 $ Sales Less:Variable Costs Contribution Less: Fixed Cost Net Income $ 3,46,500.00 5000*69.3 $-2,13,000.00 $ 1,33,500.00 $ -71,600.00 $ 61,900.00 Sales Less:Variable Costs Contribution Less: Fixed Cost Net Income $ 3,46,500.00 $-1,85,850.00 $ 1,60,650.00 $ -71,600.00 $ 89,050.00 Sales Less:Variable Costs Contribution Less: Fixed Cost Net Income $ 3,46,500.00 $-2,13,000.00 $ 1,33,500.00 $ 47,600.00 $ 85,900.00 Alternative 2 is best to earn Net Income