Question

Cullumber Company reports the following operating results for the month of August: sales $382,500 (units 5,100), variable costs $247,000, and fixed costs $96,000. Management is considering the following independent courses of action to increase net income.

1. Increase selling price by 12% with no change in total variable costs or units sold.
2. Reduce variable costs to 57% of sales.
Compute the net income to be earned under each alternative.
1. Net Income $enter a dollar amount
2. Net Income $enter a dollar amount

Answer 1

Instructions are below.

Step-by-step explanation:

Giving the following information:

Sales $382,500 (units 5,100)

Variable costs $247,000

Fixed costs $96,000

We need to determine the effect on the income of two options:

Option 1:

Increase the selling price by 12%

Sales= 382,500*1.12= 428,400

Variable cost= (247,000)

Contribution margin= 181,400

Fixed costs= (96,000)

Net income= $85,400

Option 2:

Reduce variable costs to 57% of sales

Contribution margin= (382,500*0.43)= 164,475

Fixed costs= (96,000)

Net income= $68,475