Question

Barnes Company reports the following operating results for the month of August: sales $315,000 (units 5,000); variable costs $213,000; 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. Net income $ 2. Reduce variable costs to 59% of sales. Net income $ 3. Reduce fixed costs by $24,000. Net income $ Which course of action will produce the highest net income?

Answer 1

Alternative 1:
Sales	346500
Variable costs	213000
Contribution margin	133500
Fixed expenses	71600
Net operating income	61900
Alternative 2:
Sales	315000
Variable costs	185850
Contribution margin	129150
Fixed expenses	71600
Net operating income	57550
Alternative 3:
Sales	315000
Variable costs	213000
Contribution margin	102000
Fixed expenses	47600
Net operating income	54400
Alternative 1 will produce the highest net income