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Ann [662]
3 years ago
6

Sandhill Company reports the following operating results for the month of August: sales $382,500 (units 5,100), variable costs $

245,000, and fixed costs $98,000. Management is considering the following independent courses of action to increase net income.
1. Increase selling price by 16% with no change in total variable costs or units sold.
2. Reduce variable costs to 59% 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 higher net income? select an option
Business
1 answer:
Vesnalui [34]3 years ago
3 0

Answer:

Results are below.

Explanation:

Giving the following information:

Sales $382,500 (units 5,100 $75 per unit)

variable costs $245,000 (48.04 per unit)

fixed costs $98,000.

Option 1:

Increase selling price by 16%.

New selling price= 75*1.16= 87

Sales= 5,100*87= 443,700

variable costs= (245,000)

fixed costs= (98,000)

Net income= 100,700

2. Reduce variable costs to 59% of sales.

Contribution margin= (382,500*0.41)= 156,825

fixed costs= (98,000)

Net income= 58,825

T<u>he most profitable option is the first one.</u>

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