Question

Compute the net income to be earned under each alternative.

1. Increase unit selling price by 10% with no change in total variable costs or sales volume. Net income $
2. Reduce variable costs to 60% of sales. Net income $
3. Reduce fixed costs by $19,000. Net income $ Which course of action will produce the highest net income?

Answer 1

Step-by-step explanation:

We cannot compute the net income for each alternative without additional information. We need to know the current unit selling price, total variable costs, sales volume, and fixed costs to calculate the net income for each alternative.

Once we have this information, we can calculate the net income for each alternative as follows:

1. Net income = (Current unit selling price * Sales volume * 1.1) - (Total variable costs * Sales volume) - Fixed costs

2. Net income = (Current unit selling price * Sales volume) * 0.4 - Fixed costs

3. Net income = (Current unit selling price * Sales volume) - (Total variable costs * Sales volume) - $19,000

To determine which course of action will produce the highest net income, we need to compare the net income for each alternative and choose the one with the highest value.