Exercise 11-15 Concord Company reports the following operating results for the m

Question

Exercise 11-15

Concord Company reports the following operating results for the month of August: sales $387,600 (units 5,100), variable costs $256,000, and fixed costs $93,000. Management is considering the following independent courses of action to increase net income.
1. Increase selling price by 14% with no change in total variable costs or units sold. 2. Reduce variable costs to 66% 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 0 decimal places, e.g. 12,125.)
1. Net Income $ 2. Net Income $
Which course of action will produce the higher net income? Alternative 1Alternative 2

Explanation / Answer

Answer

  

1. Increase selling price by 14% with no change in total variable costs or sales volume. Sales ($387,600 x 1.14) $441,864 Less:Variable Cost -$256,000 Contribution Margin $185,864 Less: Fixed Cost -$93,000 Net Income $92,864 2.Reduce variable costs to 66% of sales. Sales $387,600 Less:Variable Cost ($387,600 x 66%) -$255,816 Contribution Margin $131,784 Less: Fixed Cost -$93,000 Net Income $38,784 Option 1 Increase selling price by 14% will increase net income

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