Exercise 18-15 Ogilvie Company reports the following operating results for the m

Question

Exercise 18-15


Ogilvie Company reports the following operating results for the month of August: Sales $355,600 (units 5,080); variable costs $221,000; and fixed costs $96,430. Management is considering the following independent courses of action to increase net income.

Increase selling price by 10% with no change in total variable costs or units sold.
Reduce variable costs to 53% 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 highest net income? Alternative 1Alternative 2

Explanation / Answer

1. Alternative 1: Original selling price = 355,600/5080 = $70 per unit Increased selling price = $70*1.1 = $77 $391,160 sales (5080*77) -221,000 variable costs -96,430 fixed costs = $73,730 Net income = $73,730 Alternative 2: $355,600 Sales -188468 variable costs -96,430 fixed costs = $70,702 2. Which course of action will produce the highest net income? Alternative 1Alternative 2 Alternative 1 will produce the highest net income

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