Question

Swifty Company reports the following operating results for the month of August: sales $364,800 (units 4,800), variable costs $258,000, and fixed costs $95,000. Management is considering the following independent courses of action to increase net income. 1. Increase selling price by 15% with no change in total variable costs or units sold. 2. Reduce variable costs to 64% of sales.

Compute the net income to be earned under each alternative. (Round intermediate calculations to 2 decimal places e.g. 2.25 and final answer to 0 decimal places, e.g. 12,125.)

Answer 1

Answer:

1st Alternative
1) Increase Selling Price by 15% with no change in total variable costs and units Sold
Particulars	Amount ( $ )
New Sales(364,800+15%)	4,19,520
Less :Variable Costs	2,58,000
Contribution Margin	1,61,520
Less : Fixed Costs	95,000
Net Income	66,520
2nd Alternative
2.)Reduce Variable costs to 64% of Sales
Particulars	Amount ( $ )
New Sales	3,64,800
Less :New Variable Costs( sales* 64%)	2,33,472
Contribution Margin	1,31,328
Less : Fixed Costs	95,000
Net Income	36,328