Question

Sunland Company reports the following operating results for the month of August: sales $432,000 (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 10% 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. 1. Net Income 2. Net Income Which course of action will produce the higher net income?

Answer 1

Ui8007 I calculation of Net income (of sp is increased by 10%. Particulars Amounts sales ( 4,800x. ( 432,000 | 101]] $475, 200 less: variable cost 258,000 Contribution margin. 217,200 less: fred cost 95,000 Net Income $122,200 > Amount 2) Reduce variable cost to 64% of sales. variable cost = $432000 x 64% = 8276,480 Particulars & 432,000 sales less : variable cost 276, 480 contribution margin 155, 5120 cess: Fixed 95,000 cost Net income $60,520 Alternative -1 $ 122,200 than produces the highest Net income of Alternative-2.

If you have any doubts please comment on the answer