Question

E20-9 Uller Company's most recent contribution margin format income statement follows: Total arom wol slot 10 Per Unit Sales (20,000 units) $300,000 $15.00 Less: Variable expenses 180,000 9.00 Contribution margin 120,000 $ 6.00 Less: Fixed expenses 70,000 Profit $50,000 management is considering the following independent action to increase profit: Increase selling price by 15% with no change in total variable costs. 2. Reduce variable costs to 50% of sales. 3. Reduce fixed costs by $20,000. Instructions Calculate the profit to be ne profit to be earned under each alternative. Which action will produce the highest profit?

Answer 1

- - $ 15 12:25 Alternative- 1 :- Current selling price unit Add - Increase in selling price by 15.1. [ $15x157] Revised Selling price R 17.25 $3,45000 sales (20,000 Osits x $17.25) variable expenses - contribution margin - fixed expenses - Profit - 180.000 165000 Popoo $ 95000 Alternative- 1L Reduce variable costs to 501. of sales - $ 15oooo $ 3,00.000 X5023 Sales - $ 3,00,000 o variable expenses - 150000 contribution margin - 1.50,000 o fixed expenses 70,000 - profit - $ 80.000

Alternative - TL fixed cost reduced by $20,000 sales - - variable Expenses - contribution mardin -) fixed expenbes profit $ 300,000 - 180,000 1,20,000 - - K 70,000 conclusion i Alternative- highest profit. I will produce