Question

If ticket prices were decreased by 10%, passenger flights would increase by 25%. However, total variable costs would increase by the same percentage as passenger flights. (1) How much would net income be impacted by this change?

Answer 1

Answer:

Net income will remain same.

Explanation:

Net income is no change in net income because the sales is increase as the price of decreased. Net impact is zero.

For Example:

Price = 100

Variable cost = 50

Flights = 100

Net income = (100-50) x  100 = $5,000

Revised Calculation

Price = 100 x 90% = $90

Variable cost = 50

Flights = 100 x 125% = 125

Net income = (90-50) x 125 = $5,000

There is no change in the net income.