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 $315,000 (units 5,000); variable costs $219,000; and fixed costs $71,600 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 60% of sales. Net income 3. Reduce fixed costs by $20,000. Net income s Which course of action will produce the highest net income?

Explanation / Answer

1 Net income=(315000*1.1)-219000-71600= $55900 2 Net income=315000-(315000*60%)-71600= $54400 3 Net income=315000-219000-(71600-20000)= $44400 Alternative 1 will produce highest net income

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