Barnes Company reports the following operating results for the month of August:

Question

Barnes Company reports the following operating results for the month of August: sales $325,000 (units 5,000); varlable costs $218,000; and flxed costs $70,200. Management is considering the following independent courses of action to increase net income. Compute the net incorme 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 58% of sales. Net income 3. Reduce fixed costs by $20,000 Net income ? Which course of action will produce the highest net income?

Explanation / Answer

Calculate net income :

1) Net income = (325000*1.1-218000-70200) = 69300

2) Net income = (325000*42%-70200) = 66300

3) Net income = (325000-218000-50200) = 56800

Option 1 Will produce highest net income

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