Question

Sunland Company reports the following operating results for the month of August: sales $382,500 (units 5,100), variable costs $259,000, and fixed costs $99,000. Management is considering the following independent courses of action to increase net income. 1. Increase selling price by 12% with no change in total variable costs or units sold. 2. Reduce variable costs to 65% of sales. Compute the net income to be earned under each alternative. 1. Net Income $enter a dollar amount 2. Net Income $enter a dollar amount Which course of action will produce the highe

Answer 1

Answer:

Option 2 produces the higher net income = $115,150

Explanation:

Option 1: Increase selling price by 12%

Selling price = 382,500/5,100=$75

                                                                       $

Sales revenue (112%×75×5,100)                428,400

Variable cost sales                                   (259,000)

Fixed cost cost                                           ( 99,000)

Net income                                                 70400

Option 2                                                         $                            

Sales revenue                                            382,500,

Variable cost sales(65%× 259,000)         (168,350 )

Fixed cost cost                                           ( 99,000)

Net income                                                 115,150

Option 2 produces the higher net income = $115,150