Exercise 19-3 Norton Company reports the following operating results for the mon
ID: 1193513 • Letter: E
Question
Exercise 19-3
Norton Company reports the following operating results for the month of August: sales $305,000 (units 5,000); variable costs $212,200; and fixed costs $67,500.
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 52% of sales.
3. Reduce fixed costs by $17,700.
Exercise 19-4
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Exercise 19-6
Yard Tools manufactures lawnmowers, weed-trimmers, and chainsaws. Its sales mix and contribution margin per unit are as follows.
Sales Mix
Contribution
Margin per Unit
Yard Tools has fixed costs of $7,174,440.
Compute the number of units of each product that Yard Tools must sell in order to break even under this product mix.
units
Product
A
B
C
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Product A
Product B
Product C
Net income$
Explanation / Answer
(19-3)
Net Income (NI) = Sales revenue - variable costs - fixed costs
(1) Selling price increases 10%
Since sales volume remains unchanged, revised sales revenue = 1.1 x $305,000 = $335,500
NI = $(335,500 - 212,200 - 67,500) = $55,800
(2) Variable costs = 52% of sales = $305,000 x 0.52 = $158,600
NI = $(305,000 - 158,600 - 67,500) = $78,900
(3) Fixed cost reduced by $17,700 to $49,800
NI = $(305,000 - 212,200 - 49,800) = $43,000
NOTE: There are 2 multi-part questions, out of which the first question is answered in full.
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