Homework SourseFlint Company reports the following operating results for th
Flint Company reports the following operating results for the month of August: sales $350,000 (units 5,000), variable costs $248,000, and fixed costs $97,000. Management is considering the following independent courses of action to increase net income.
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?
| 1. | Increase selling price by 11% with no change in total variable costs or units sold. | |
| 2. | Reduce variable costs to 57% of sales. |
Solution
The correct answer is :
Alternative 2 would produce the higher net income.
Notes:
1. Alternative 1 , Sales = $ 350,000 * 111%
= $ 388,500
2. Alternative 2 , Variable Cost = $ 350,000 * 57%
= $ 199,500
3.
| 1 | Net Income | $ 43,500 | ||
| 2 | Net Income | $ 53,500 |
