Exercise 18-15 Yams Company reports the following operating results for the mont

Question

Exercise 18-15

Yams Company reports the following operating results for the month of August: sales $390,000 (units 5,000), variable costs $256,000, and fixed costs $91,000. 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 57% 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 1
Alternative 2

Explanation / Answer

Answer:-1)-

2)-

Alternative 2 will provide a higher net income.

Explanation:-Selling price per unit =$390000/5000 units =$78 per unit

Variable cost per unit=$256000/5000 units =$51.20 per unit

Yams Company Contribution Format Income statement Particulars Amount $ Sales 5000 units*($78.00 per unit*114%) 444600 Less:- Variable costs 5000 units*$51.20 per unit 256000 Contribution margin 188600 Less:- Fixed costs 91000 Net opreating income 97600

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