Ger Company reports the following operating results for the month of August: Sal

Question

Ger Company reports the following operating results for the month of August: Sales $305,000 (units 5,000); variable costs $217,400; and fixed costs $70,600. Management is considering three independent courses of action to increase net income.

Compute the net income that would result from each of the independent actions below: (Round your answers to 0 decimal places, e.g. 52,500. When computing new selling price round your computation to 2 decimal places, e.g. 66.25 to arrive at the answer.)

$

$

$

1. Increase selling price by 10% with no change in total variable costs.

$

2. Reduce variable costs to 52% of sales.

$

3. Reduce fixed costs by $21,900.

$

Explanation / Answer

This would be the formula: Sales $305,000 - VC $217,400 = CM $87,600 - FC $70,600 = Net Income $17,000 Now, the first question is what would happen if the selling price goes up by 10% with no change in total variable costs. Right? Ok, increase the selling price by 10% $305,000 x 10% = 30,500 $305,000 + $30,500= $335,500 Sales $335,500 - VC $217,400 = CM $118,100 - FC $70,600 = Net Income $47,500 Thus, the net income to be earned by Increase the selling price 10% would be $ 47,500 Now, by reducing the variable costs to 55% of sales you would get a net income: Take 55% of sales to get the total variable cost: $305000 x 55%= $167,750 Sales $305,500 - VC $167,750 = CM $137,750 - FC $70,600 = N I $61,150 By reducing the variable costs to 55% of sales you would get a net income of $ 61,150

Related Questions

Navigate

• Browse (All)
• Browse G
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.