Exercise 1815 Yams Company reports the following operating r

Exercise 18-15 Yams Company reports the following operating results for the month of August: sales $382,500 (units 5,100), variable costs $253,000, and fixed costs $97,000. Management is considering the following independent courses of action to increase net income 1. Increase selling price by 15% with no change in total variable costs or units sold. 2. Reduce variable costs to 58% 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 o decimal places, e.g. 12,125.) 1. Net Income ? 2. Net Income ? Which course of action will produce the higher net income?

Solution

Dear Student Thank you for using Chegg Please find below the answer Statementshowing Computations Paticulars Alternative 1 Alternative 2 Sales Alternative 1 = 382500*1.15        439,875.00         382,500.00 Less Variable Expenses Alternative 2 = 382500*.58     (253,000.00)       (221,850.00) Contribution Margin        186,875.00         160,650.00 Fixed cost        (97,000.00)         (97,000.00) Net operating income          89,875.00            63,650.00 Alternative 1 will produce higher net income