Answer:
1. Increase selling price by 10% with no change in total variable costs or sales volume. What's the Net income?
Increase selling price by 10%,
300,000 x 110% = $330,000
Sales $330,000
Variable Cost $222,000
Contribution margin $108,000
Fixed Costs $71,900
Net Income $36,100
Net Income is $36,100 if sales price is increased by 10%, with no change in variable or fixed costs.
2. Reduce variable costs to 60% of sales. Whats the Net income?
Take 60% of sales to get the total variable cost:
$300,000 x 60% = 180,000
Sales $300,000
Variable Cost $180,000
Contribution margin $120,000
Fixed Costs $71,900
Net Income $48,100
Net Income is $48,100 if variable costs reduce to 60% of sales.
3. Reduce fixed costs by $19,000. Whats's the Net income?Which course of action will produce the highest net income?
Reduce fixed costs by $19,000
$71,900 - $19,000 = $52,900
Sales $300,000
Variable Cost $222,000
Contribution margin $78,000
Fixed Costs $52,900
Net Income $25,100.
The highest income is produced in scenario 2, when the variable costs are reduced to 60% of sales.
