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 $300,000 (units 5,000); variable costs $210,100; and fixed costs $71,600. 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 51% of sales.

$

3. Reduce fixed costs by $22,800.

$

Explanation / Answer

1. Increase selling price by 10% with no change in total variable costs.
$48,600

Sales                  $300,000 x 1.1       = $330,000
Less : VC                                             $210,000
Contribution Margin                             $120,000
Less : Fixed Costs                                 $71,600  
Net Income                                         $48,400

2. Reduce variable costs to 51% of sales.
$75,400


Sales                                                  $300,000
Less : VC    $300,000 x 51%                  $153,000
Contribution Margin                             $147,000
Less : Fixed Costs                                 $71,600  
Net Income                                         $75,400

3. Reduce fixed costs by $22,800.
$41,200

Sales                                                  $300,000
Less : VC    $300,000 x 70%                  $210,000
Contribution Margin                              $90,000
Less : Fixed Costs                                 $48,800  
Net Income                                         $41,200

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