Moran Company reports the following operating results for the month of August: S

Question

Moran Company reports the following operating results for the month of August: Sales $370,000 (units 5,000); variable costs $219,000; and fixed costs $95,600. 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.
Reduce variable costs to 55% of sales.

Compute the net income to be earned under each alternative. (Round computations to 2 decimal places, e.g. 86.50 and final answers to 0 decimal places, e.g. 125,250.)

1) $________________
2) $________________

WHICH COURSE OF ACTION WILL PRODUCE THE HIGHEST NET INCOME?
1 OR 2?????????

Explanation / Answer

net income under 1st alternative
sales=370000+10%=407000
less variable cost=219000
less fixed costs=95600
net income=407000-219000-95600=$92400

net income under 2nd alternative
sales=370000
less variable cost=370000*55%=203500
less fixed costs=95600
net income=370000-203500-95600=$70900

1ST COURSE OF ACTION WILL PRODUCE THE HIGHEST NET INCOME WITH $92400

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