Question

Vaughn Company reports the following operating results for the month of August: sales $315,000 (units 5,000); variable costs $219,000; and fixed costs $71,600. 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

Answer: $55,900

Step-by-step explanation:

Based on the information given in the question, the following can be derived:

Units = 5000

Sales = $315000

Variable costs = $219,000

Fixed costs = $71,600

Selling price per unit

= 315,000/5000.

= 63

Variable expense per unit

= 219,000/5,000

= 43.8

Contribution margin per unit

= 63 - 43.8

= 19.2

We then calculate the 10% increase in selling price. This will be:

= $63 × (100% + 10%)

= $63 × 110%

= $63 × 1.10

= $69.3

Sales = 5000 × 69.3 = 346500

Less: Variable expense = 5000 × 43.80 = 219000

Contribution margin = 127500

Less: Fixed expense = 71,600

Net operating income = 55,900