Barnes Company reports the following operating results for the month of August: sales $325,000 (units 5,000); variable costs $218,000; and fixed costs $70,200. 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. 2. Reduce variable costs to 58% of sales. 3. Reduce fixed costs by $20,000. Which course of action will produce the highest net income?
Barnes Company reports the following operating results for the month of August: sales $325,000 (units 5,000); variable costs $218,000; and fixed costs $70,200. 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. 2. Reduce variable costs to 58% of sales. 3. Reduce fixed costs by $20,000. Which course of action will produce the highest net income?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Barnes Company reports the following operating results for the month of August: sales $325,000 (units 5,000); variable costs $218,000; and fixed costs $70,200. 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.
2. Reduce variable costs to 58% of sales.
3. Reduce fixed costs by $20,000.
Which course of action will produce the highest net income?
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