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Number 5 Birchfield Company reports the following operating results for the month of February: Sales $900,000 (units 15,000); variable costs $472,500; and fixed costs $202,500. Management is considering the following independent courses of action to increase net income. 1. Increase selling price by 2.5% with no change in total variable costs or units sold. Reduce variable costs to 49% of sales 2. ty fhom locat Instructions (a) Compute the net income to be earned under each alternative. Which course of action will produce the highest net income? Birchfield's management is looking at longer term solutions to improve net income. One of the options they have reviewed will increase fixed expenses by $27,500 while reducing variable expenses by $2 per unit. Management feels that with these changes the price of the product could be reduced by $1 per unit. The decrease in price will then result in an increase in unit sales of 5%. Compute the net income to be earned under this alternative. Do you recommend this option? Why or why not? (b) leverage for e 1525 000? fsatoty ra f tne's vice pres-ent 9

Number 5 Birchfield Company reports the following operating results for the month of February: Sales $900,000 (units 15,000); variable costs $472,500; and fixed costs $202,500. Management is considering the following independent courses of action to increase net income. 1. Increase selling price by 2.5% with no change in total variable costs or units sold. Reduce variable costs to 49% of sales 2. ty fhom locat Instructions (a) Compute the net income to be earned under each alternative. Which course of action will produce the highest net income? Birchfield's management is looking at longer term solutions to improve net income. One of the options they have reviewed will increase fixed expenses by $27,500 while reducing variable expenses by $2 per unit. Management feels that with these changes the price of the product could be reduced by $1 per unit. The decrease in price will then result in an increase in unit sales of 5%. Compute the net income to be earned under this alternative. Do you recommend this option? Why or why not? (b) leverage for e 1525 000? fsatoty ra f tne's vice pres-ent 9

Managerial Accounting: The Cornerstone of Business Decision-Making
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter7: Cost-volume-profit Analysis
Section: Chapter Questions
Problem 46E: Lotts Company produces and sells one product. The selling price is 10, and the unit variable cost is...
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Number 5 Birchfield Company reports the following operating results for the month of February: Sales $900,000 (units 15,000); variable costs $472,500; and fixed costs $202,500. Management is considering the following independent courses of action to increase net income. 1. Increase selling price by 2.5% with no change in total variable costs or units sold. Reduce variable costs to 49% of sales 2. ty fhom locat Instructions (a) Compute the net income to be earned under each alternative. Which course of action will produce the highest net income? Birchfield's management is looking at longer term solutions to improve net income. One of the options they have reviewed will increase fixed expenses by $27,500 while reducing variable expenses by $2 per unit. Management feels that with these changes the price of the product could be reduced by $1 per unit. The decrease in price will then result in an increase in unit sales of 5%. Compute the net income to be earned under this alternative. Do you recommend this option? Why or why not? (b) leverage for e 1525 000? fsatoty ra f tne's vice pres-ent 9
Transcribed Image Text:Number 5 Birchfield Company reports the following operating results for the month of February: Sales $900,000 (units 15,000); variable costs $472,500; and fixed costs $202,500. Management is considering the following independent courses of action to increase net income. 1. Increase selling price by 2.5% with no change in total variable costs or units sold. Reduce variable costs to 49% of sales 2. ty fhom locat Instructions (a) Compute the net income to be earned under each alternative. Which course of action will produce the highest net income? Birchfield's management is looking at longer term solutions to improve net income. One of the options they have reviewed will increase fixed expenses by $27,500 while reducing variable expenses by $2 per unit. Management feels that with these changes the price of the product could be reduced by $1 per unit. The decrease in price will then result in an increase in unit sales of 5%. Compute the net income to be earned under this alternative. Do you recommend this option? Why or why not? (b) leverage for e 1525 000? fsatoty ra f tne's vice pres-ent 9
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