Question

HI 5 Announcements CALCULATOR PRINTER VERSION BACK Exercise 191 Englehart, Inc. reports the following operating results for the month of August: Sales $450,000 (units 5,000); variable costs $280,000; and fixed costs $115,000. 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. 2. Reduce variable costs to 65% of sales. 3. Reduce fixed costs by $15,000. Compute the net income to be eamed under each alternative. Net Income 1. Increase selling price $ 2. Reduce variable costs 3. Raduce fixed costs Which course of action will produce the highest net income? will produce ligest net income. Click If you would like to show Work for this questions Open Show Work

Answer 1

Existing Data

Sales Value = $450000 i.e. 5000 units at $90

(-)Variable Cost= $ 280000 i.e 5000 units at $56

Contribution = $170000 i.e. 5000 units at $34

(-)Fixed Cost = $115000

Profit = $55000

1. Increse Selling Price 2. Reduce variable cost 3.Reduce Fixed

by 10% to 65% of sales cost by $15000

Selling Price per unit $99 [90+9(90*10%)] $90 $90

(-) Variable cost per unit $56 $58.5 (90*65%) $56

Contribution per unit $43 $31.5 $34

Total Contribution $215000(5000*$43) $157500(5000*$31.5) $170000(5000*$34)

(-)Fixed Cost $115000 $115000   $100000($115000-$15000)

Profit/Net Income $100000 $42500   $70000

Option 1.Increase selling price by 10% will produce net income i.e. $100000