Question Completion Status: QUESTION 12 Clfton Company reports the following ope

Question

Question Completion Status: QUESTION 12 Clfton Company reports the following operating results for the month of August Sales, $350,000 (5,000 units); variable costs $210,000, increase net income: , and fixed costs, $90,000. Management is considering the following independent courses of action to 1. Increase selling price by 10% with no change in total variable costs or units sold 2. Reduce variable costs to 55% of sales. Required: (Do not hit the tab key, only use the space bar and the enter key) [1] Compute the net income to be earned under each alternative. 2] Which course of action will produce the highest net income? TTT Arial Click Save and Submit to save and submit. Click Save All Answers to save all anavers

Explanation / Answer

(1.)

First Alternative:-

By Increasing the Selling price by 10%

a) Sales = $ 385,000 ( increased by 10% ie (350,000*110%))

b) Variable Cost = $ 210,000

c) Fixed Cost = $ 90,000

d) Net Income (a-b-c) = $ 85,000

Second Alternative :-

By Reducing the Variable cost to 55% of Sales

a) Sales = $ 350,000

b) Variable Cost = $ 192,500 (55% of Sales)

c) Fixed Cost = $ 90,000

d) Net Income (a-b-c) = $ 67,500

(2.)

the first alternative of Increasing the Sale price by 10% will produce the highest net income than reducing the Variable cost to 55%of Sales.

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