Carla Vista Company reports the following operating results for the month of August: sales $385,000 (units 5,500), variable costs $250,000, and fixed costs $94,000. Management is considering the following independent courses of action to increase net income. 1. Increase selling price by 10% with no change in total variable costs or units sold. 2. Reduce variable costs to 56% of sales. Compute the net income to be earned under each alternative. 1. Net Income $ 2. Net Income $ Which course of action will produce the higher net income
Answers
Answer and Explanation:
The computation is shown below:
1.
Selling Price = Sales ÷ Units Sold
Current Selling Price = $385,000 ÷ 5500
= $70
Now
Expected Selling Price per unit = $70 + ($70× 10%)
= $77
Now
Expected Sales = 5500 × $77
= $423,500
Now
Net Income = Sales - Variable Cost - Fixed Cost
= $423,500 - $250,000 - $94,000
2.
Sales = $385000
Variable cost = $385,000 × 56% = $215,600
Sales $385,000
Less: variable cost -$215,600
Contribution Margin $169,400
Les: fixed cost -$94,000
Net Income $75,400
As we can see that if there is an increase in Selling Price by 10% so it would produce highest Net Income.
Comparing two scenarios for Carla Vista Company: one of increasing the selling price by 10%, and the other of reducing the variable costs to 56% of sales, the former scenario of increasing the selling price provides a higher net income and is the better strategy.
The question asks us to calculate the net income under two different scenarios for Carla Vista Company, and then determine which option produces the higher net income.
To do this, we first need to understand the company's current situation.
Its current net income is calculated as follows: Sales ($385,000) - Variable Costs ($250,000) - Fixed Costs ($94,000) = $41,000.
Under the first alternative, management plans to increase the selling price by 10% without any changes in total variable costs or units sold.
So the new sales figure will be $385,000 + 10% of $385,000 = $423,500.
The net income then becomes: New Sales ($423,500) - Variable Costs ($250,000) - Fixed Costs ($94,000) = $79,500.
Under the second alternative, management plans to reduce variable costs to 56% of sales.
So, the new variable costs will be 56% of $385,000 = $215,600.
The net income then becomes: Sales ($385,000) - New Variable Costs ($215,600) - Fixed Costs ($94,000) = $75,400.
Comparing the two alternatives, we see that the first alternative, increasing the selling price by 10%, gives a higher net income and should thus be the advisable course of action.
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Related Questions
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Answers
Answer:
D. decreasing returns to scale.
The answer and procedures of the exercise are attached in the image below.
Explanation
Please consider the data provided by the exercise. If you have any question please write me back. All the exercises are solved in a single sheet with the formulas indications.
Answers
Answer:
-2.4%
Explanation:
The GDP per person of the nation of Freedonia for the current and last year, respectively, are:
The growth rate (R) between this year and last year is given by:
The growth rate of real GDP per person was -2.4%.
Answers
Answer:
a-1 Present value = 6,177.39
a2- Present Value =6,227.79
a3- Choose the payment stream with the highest present value = a2
b1- Present Value=3,353.98
b2-Present Value=2,805.28
b3-Choose the payment stream with the highest present value = b1
Explanation:
a-1 describes an ordinary annuity whose present value is calculated as follows:
where PMT=$800; i= 5%, n= 10
= 6,177.39
a2- = 6,227.79
a3- If I were receiving these payments annually, I would prefer the payment stream with the highest present value ie a2 -Annual payment of $600 for 15 years at 5% interest.
b1- = 3,353.98
b2- =2,805.28
b3- f I were receiving these payments annually, I would prefer the payment stream with the highest present value ie b1- Annual payment of $800 for 10 years at 20% interest.
Answers
Answer:
A) Your own Contribution in 401(K) is $12,000.
B) Total Value of fund after one year = $21,000 × (1 + 12%)
= $23,520.
Explanation:
A) Total Annual Income = $120,000
Contribution in 401(K) = 10% of income
= $120,000 × 10%
= $12,000
your own Contribution in 401(K) is $12,000.
Employee contribution after tax = $12,000 × (1 31%)
= $8,280
Contribution of employer = $12,000 × 75%
= $9,000
Total Contribution = $12,000 + $9,000
= $21,000
Total Contribution in one year is $12,000.
Yield on fund = 12%
Total Value of fund after one year = $21,000 × (1 + 12%)
= $23,520.
after tax return = ($23,520 -$8,280) / $8,280
= 184%
After tax return is 184%.
You don't have to pay that income tax until you withdraw the money
Final answer:
The annual investment in the 401(k) plan is $21,525, comprising $12,300 from your contribution and $9,225 from your company's match. The one-year return, counting an expected yield of 12%, would be $24,108.
Explanation:
The annual investment in the 401(k) plan is calculated by finding 10% of the annual income of $123,000 which amounts to $12,300. The company then matches 75% of this investment. So, the company contribution is 0.75 * $12,300 = $9,225. Therefore, the total annual investment into the 401(k) plan is $12,300 (your contribution) + $9,225 (company’s contribution) = $21,525.
Your one-year return would be the total investment in the fund, including the expected 12% yield next year. So that's $21,525 * 1.12 = $24,108.
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Answers
Answer:
Present value (P) = $4,000
Interest rate (r) = 6% = 0.06
Number of years (n) = 5 years
FV = P(1 + r)n
FV = $4,000(1 + 0.06)5
FV = $4,000(1.06)5
FV = $4,000 x 1.338225578
FV = $5,353
Explanation:
The future value of the investment is a function of present value multiplied by 1 + interest rate raised to power number of years.
Answers
Answer:
Store A = 3.4521
Store B = 2.9589
Store C = 4.4384
Explanation:
Store A charges ADB method
purchase made on 5th first payment on 15th of 100
so from 5th to 15th Average daily balance =300 for 10 days
then from 15th to 4th for remaining 20 days average daily balance = 200
Average Daily Balance = (300*10+200*20)/30
Total finance charge = ADB*(APR*(Days/365))
=300*((0.18)*(10/365))+200*((0.18)*(20/365))
= 1.4795+1.9726=3.4521
Store B
Adjusted Balance Method uses adjusted balance to calculate the charges
Adjusted balance=Starting balance adjusted for credit and debit
Adjusted balance =300-100=200
Financial Charges = 200*(.18*(30/365))=2.9589
Store C
Previous Balance Method the interest is calculated on amount of balance carried from previous billing cycle
Balance Carried = 300
Charges =300*(.18*(30/365))= 4.4384
Answer:
Store A finance charge = $140.625
Store B finance charge = $90
Store C finance charge = $202.5
Explanation:
Store A
Average daily balance Finance Charge
(300*200)/2 = $250 3.75(250*0.15) = $140.625
Store B
Adjusted balance method
(300-100) = $200 3.00*(200*0.15) = $90
Store C
Previous balance method
300 - 0 = $300 4.50(300*0.15) = $202.5