Exercise 19-3 Barnes Company reports the following operating results for the mon

Question

Exercise 19-3 Barnes Company reports the following operating results for the month of August: sales $300,000 (units 5,000); variable costs $217,000; and fixed costs $71,800. 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. Net income 2. Reduce variable costs to 56% of sales. Net income 3. Reduce fixed costs by $18,000. Net income Which course of action will produce the highest net income?

Explanation / Answer

1) Net Income $ 41,200 Working: Existing Case: Per Unit Total Sales $          60.00 $            300,000 Variable costs $          43.40 $            217,000 Contribution Margin $          16.60 $              83,000 Fixed Costs $              71,800 Net Income $              11,200 a. Existing sales price per unit = $     300,000 /          5,000 = $          60.00 Increase in Selling Price $          60.00 x 10% = $            6.00 Changed sale price $          66.00 Existing Variable costs = $     217,000 / 5000 = $          43.40 b. Now, Revised Income statement: Per Unit Total Sales $          66.00 $            330,000 Variable costs $          43.40 $            217,000 Contribution Margin $          22.60 $            113,000 Fixed Costs $              71,800 Net Income $              41,200 2) Net Income $ 60,200 Working: Existing Case: Per Unit Total Sales $          60.00 $            300,000 Variable costs $          43.40 $            217,000 Contribution Margin $          16.60 $              83,000 Fixed Costs $              71,800 Net Income $              11,200 a. Revised Variable costs = $          60.00 x 56% = $          33.60 b. Now, Revised Income statement: Per Unit Total Sales $          60.00 $            300,000 Variable costs $          33.60 $            168,000 Contribution Margin $          26.40 $            132,000 Fixed Costs $              71,800 Net Income $              60,200 3) Net Income $ 29,200 Working: Existing Case: Per Unit Total Sales $          60.00 $            300,000 Variable costs $          43.40 $            217,000 Contribution Margin $          16.60 $              83,000 Fixed Costs $              71,800 Net Income $              11,200 a. Revised fixed costs = $ 71,800.00 - $   18,000 = $ 53,800.00 b. Now, Revised Income statement: Per Unit Total Sales $          60.00 $      300,000.00 Variable costs $          43.40 $      217,000.00 Contribution Margin $          16.60 $        83,000.00 Fixed Costs $        53,800.00 Net Income $        29,200.00 4) Reducing Variable costs to 56% of sales will produce the highest net income. Working: Existing Revised Increase in Net Income Rank Increasing selling price $        11,200 $              41,200 $   30,000 II reducing variable costs $        11,200 $              60,200 $   49,000 I Reducing Fixed costs $        11,200 $              29,200 $   18,000 III

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.