Answer:
1. $30,500;
2. $30,000;
3. $22,000;
=> Option 1 produce the highest net income.
Explanation:
We have sell price per unit = 305K /5K = $61
1. Increase selling price by 10% with no change in total variable costs or sales volume:
Sell price = 61 x 1.1 = $67.1
Sales revenue = 67.1 x 5,000 = $335,500
Increase in sales revenue = 335.5K - 305K = $30,500
As costs remains the same, Net income will increase as much as the increase as sales revenue which is $30,500.
2. Reduce variable costs to 60% of sales:
New variable cost = $305,000 x 60% = $183,000
Saving in variable cost = 213K - 183K = $30,000
As fixed cost and sales revenue remain the same, net income will increase as much as the saving in variable cost which is $30,000
3. Reduce fixed costs by $22,000:
As variable cost and sales revenue remain the same, net income will increase as much as the saving in fixed cost which is $22,000
