Question

ON arses/119937/assignments:/869502 - Your answer is partially correct. Crane Company reports the following operating results for the month of August: sales $420,000 (units 5,600), variable costs $254.000, and fixed costs $94,000. Management is considering the following independent courses of action to increase net income. 1. Increase selling price by 12% with no change in total variable costs or units sold. 2. Reduce variable costs to 58% of sales. Compute the net income to be earned under each alternative. 1. Net Income S Net Income $ 2. Amative Which course of action will produce the higher net income? Attempts: 1 of 7 used

Answer 1

1. By increasing selling price by 12%

Particulars	Amount
Sales ($420,000 x 1.12)	$ 470,400.00
Less: Variable cost	$ 254,000.00
Contribution	$ 216,400.00
Less: Fixed Cost	$   94,000.00
Net Income	$ 122,400.00

2. By reducing variable cost to 58%

Particulars	Amount
Sales	$                             420,000.00
Less: Variable cost ($420,000*58%)	$                             243,600.00
Contribution	$                             176,400.00
Less: Fixed Cost	$                               94,000.00
Net Income	$                               82,400.00

Second course of action i.e. increasing selling price by 12% will produce higher net income. Alternative 1