Question

Sheffield Company reports the following operating results for the month of August: sales $315,000 (units 5,000); variable costs $216,000; and fixed costs $70,800. 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.

Answer 1

1. the net income if selling price increased by 10% would be = $59,700

Net income increased by $31,500.

Step-by-step explanation:

Given,

Sales = $315,000

Variable costs = $216,000

Fixed costs = $70,800

No. of units = 5,000

Sheffield Company

Income Statement (Contribution Margin Format)

Particulars $

Sales 315,000

Less: Variable expenses (216,000)

Contribution Margin 99,000

Less: Fixed costs (70,800)

Net Income 28,200

Since the selling price increased by 10% and no change in variable costs and volume, therefore, we can get -

Sales = $315,000 x (1 + 0.10) = $346,500

In this case, the net income will be as follows:

Sales = $346,500

Less: Variable Costs = (216,000)

Contribution Margin = 130,500

Less: Fixed Costs = (70,800)

Net Income = 59,700