Ans. | Current situation : | ||||
Total | Per unit | ||||
Sales | 325000 | 65 | |||
Less: variable expenses | 210000 | 42 | |||
Contribution margin | 115000 | 23 | |||
Less: Fixed expenses | 75000 | ||||
Net income | 40000 | ||||
*Selling price per unit = Total sales / No. of units sold | |||||
325000 / 5000 = $65 per unit | |||||
*Variable cost per unit = Total variable cost / No. of units sold | |||||
210000 / 5000 = $42 per unit | |||||
E6 - 3 | |||||
Ans. 1 | New selling price = 65 * 110% | 71.5 | |||
Total | Per unit | ||||
Sales (5000*71.5) | 357500 | 71.5 | |||
Less: variable expenses | 210000 | 42 | |||
Contribution margin | 147500 | 29.5 | |||
Less: Fixed expenses | 75000 | ||||
Net income | 72500 | ||||
Ans.2 | New variable cost = 325000 * 58% = 188500 | ||||
Total | Per unit | ||||
Sales | 325000 | 65 | |||
Less: variable expenses | 188500 | 37.7 | |||
Contribution margin | 136500 | 27.3 | |||
Less: Fixed expenses | 75000 | ||||
Net income | 61500 | ||||
Ans.3 | New fixed cost = (75000 - 15000) = 60000 | ||||
Total | Per unit | ||||
Sales | 325000 | 65 | |||
Less: variable expenses | 210000 | 42 | |||
Contribution margin | 115000 | 23 | |||
Less: Fixed expenses | 60000 | ||||
Net income | 55000 | ||||
* | The first course of action (Ans.1) will provide the highest net income. | ||||
*Additional questions: | |||||
Ans. 1 | New selling price = 65 * 105% | 68.25 | |||
Total | Per unit | ||||
Sales (5000*71.5) | 341250 | 68.25 | |||
Less: variable expenses | 210000 | 42 | |||
Contribution margin | 131250 | 26.25 | |||
Less: Fixed expenses | 75000 | ||||
Net income | 56250 | ||||
Ans.2 | New variable cost = 325000 * 53% = 172250 | ||||
Total | Per unit | ||||
Sales | 325000 | 65 | |||
Less: variable expenses | 172250 | 34.45 | |||
Contribution margin | 152750 | 30.55 | |||
Less: Fixed expenses | 75000 | ||||
Net income | 77750 | ||||
Ans.3 | New fixed cost = (75000 + 20000) = 95000 | ||||
Total | Per unit | ||||
Sales | 325000 | 65 | |||
Less: variable expenses | 210000 | 42 | |||
Contribution margin | 115000 | 23 | |||
Less: Fixed expenses | 95000 | ||||
Net income | 20000 | ||||
* | The second course of action (Ans.2) will provide the highest net income. | ||||
E6-3 Barnes Company reports the following operating results for the month of August: sales Compute net...
6.3 (LO 1),AP Barnes Company reports the following operating results for the month of August: sales 000 (units 5,000); variable costs $210,000; and fixed costs $75,000. Management is considering the following independent courses of action to increase net income. I. Increase selling price by 10% with no change in total variable costs or sales volume, 2. Reduce variable costs to 58% of sales. 3. Reduce fixed costs by $15,000 Instructions Compute the net income to be earned under each alternative....
E6.3 (LO 1), AP Barnes Company reports the following operating results for the month of August: sales $325,000 (units 5,000); variable costs $210,000; and fixed costs $75,000. Management is considering the following independent courses of action to increase net income. 1. Increase selling price by 10% with no change in total variable costs or sales volume. 2. Reduce variable costs to 58% of sales. 3. Reduce fixed costs by $15,000. Instructions Compute the net income to be earned under each...
Exercise 20-3 Barnes Company reports the following operating results for the month of August: sales $300,000 (units 5,000); variable costs $217,000; and fixed costs $70,000. 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 55% of sales. Net income 3. Reduce fixed costs...
Barnes Company reports the following operating results for the month of August: sales $300,000 (units 5,000); variable costs $217,000; and fixed costs $70,000. 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 incomes 2. Reduce variable costs to 55% of sales. Net income $ 3. Reduce fixed costs by...
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...
Exercise 19-03 Barnes Company reports the following operating results for the month of August: sales $325,000 (units 5,000); variable costs $218,000; and fixed costs $70,000. 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 57% of sales. Net income 3. Reduce fixed...
Barnes Company reports the following operating results for the month of August: sales $320,000 (units 5,000); variable costs $216,000; and fixed costs $70,500. 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 $enter the net income that will be earned under the first Alternative 2. Reduce variable costs...
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...
Exercise 19-03 Barnes Company reports the following operating results for the month of August: sales $315,000 (units 5,000); variable costs $224,000; and fixed costs $71,900. 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 60% of sales. Net income 3. Reduce fixed costs...
RCES Exercise 19-3 nt Barnes Company reports the following operating results for the month of August: sales $315,000 (units 5,000); variable costs $218,000; and fixed costs $70,000. 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 $ Study 2. Reduce variable costs to 60 % of sales....