Henderson Farms reports the following results for the month of November: Sales (10,000 units) $600,000 Variable costs 420,000 Contribution margin 180,000 Fixed costs 110,000 Net income $ 70,000 Management is considering the following independent courses of action to increase net income. 1. Increase selling price by 5% with no change in total variable costs. 2. Reduce variable costs to 66 ²/³% of sales. 3. Reduce fixed costs by $10,000. Calculate net income for the above courses of action. Course Net Income 1. Increase selling price $ 2. Reduce variable cost $ 3. Reduce fixed cost $ If maximizing net income is the objective, which is the best course of action? Best course of action is reducing variable costreducing fixed costincreasing selling price
Henderson Farms reports the following results for the month of November: Sales (10,000 units) $600,000 Variable costs 420,000 Contribution margin 180,000 Fixed costs 110,000 Net income $ 70,000 Management is considering the following independent courses of action to increase net income. 1. Increase selling price by 5% with no change in total variable costs. 2. Reduce variable costs to 66 ²/³% of sales. 3. Reduce fixed costs by $10,000. Calculate net income for the above courses of action. Course Net Income 1. Increase selling price $ 2. Reduce variable cost $ 3. Reduce fixed cost $ If maximizing net income is the objective, which is the best course of action? Best course of action is reducing variable costreducing fixed costincreasing selling price
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Henderson Farms reports the following results for the month of November:
| Sales (10,000 units) | $600,000 | ||
| Variable costs | 420,000 | ||
| Contribution margin | 180,000 | ||
| Fixed costs | 110,000 | ||
| Net income | $ 70,000 |
Management is considering the following independent courses of action to increase net income.
| 1. | Increase selling price by 5% with no change in total variable costs. | |
| 2. | Reduce variable costs to 66 ²/³% of sales. | |
| 3. | Reduce fixed costs by $10,000. |
Calculate net income for the above courses of action.
| Course | Net Income | |||
| 1. | Increase selling price | $
|
||
| 2. | Reduce variable cost | $
|
||
| 3. | Reduce fixed cost | $
|
If maximizing net income is the objective, which is the best course of action?
| Best course of action is
reducing variable costreducing fixed costincreasing selling price
|
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