Answer:
The best course of action is to increase the selling price by 10%.
Explanation:
Giving the following information:
sales $392,000 (units 4,900)
variable costs (247,000)
fixed costs (96,000)
Current net income= 49,000
<u>First, we need to calculate the unitary selling price and variable cost:</u>
Selling price= 392,000 / 4,900= $80
Unitary variable cost= 247,000 / 4,900= $50.41
<u>Now, we will calculate the impact on net income of each variation:</u>
Increasing selling price by 10%:
Selling price= 80*1.1= $88
Effect on income= 8*4,900= $39,200 increase
<u>Reduce variable costs to 57% of sales.</u>
Unitary variable cost= 80*0.57= $45.6
Effect on income= (50.41 - 45.6)*4,900= $23,569 increase
<u>Reduce fixed costs by $22,000.</u>
Effect on income= $22,000 increase
