Exercise 1
Yams Company reports the following operating results for the month of August: sales $360,000 (units 4,800), variable costs $245,000, and fixed costs $92,000. Management is considering the following independent courses of action to increase net income.
1. Increase selling price by 11% with no change in total variable costs or units sold.
2. Reduce variable costs to 61% of sales.
Compute the net income to be earned under each alternative. (Round intermediate calculations to 2 decimal places e.g. 2.25 and final answer to 0 decimal places, e.g. 12,125.)
Which course of action will produce the higher net income?
Exercise 2
Barnes Company reports the following operating results for the month of August: sales $305,000 (units 5,000); variable costs $220,000; and fixed costs $70,300. Management is considering the following independent courses of action to increase net income.
Compute the net income to be earned under each alternative.
1. Increase selling price by 10% with no change in total variable costs or sales volume.
2. Reduce variable costs to 60% of sales.
3. Reduce fixed costs by $21,000.
Which course of action will produce the highest net income?