Question

Sandhill Company reports the following operating results for the month of August: sales $382,500 (units 5,100), variable costs $245,000, and fixed costs $98,000. Management is considering the following independent courses of action to increase net income.

1.		Increase selling price by 16% with no change in total variable costs or units sold.
2.		Reduce variable costs to 59% of sales.

Compute the net income to be earned under each alternative.

1.		Net Income		$enter a dollar amount
2.		Net Income		$enter a dollar amount

Which course of action will produce the higher net income? select an option

Answer 1

1
Sales	443700	=382500*1.16
Less: Variable expenses	245000
Less: Fixed expenses	98000
Net Income	100700
2
Sales	382500
Less: Variable expenses	225675	=382500*59%
Less: Fixed expenses	98000
Net Income	58825
3
Option 1 will produce the higher net income