Henderson Farms reports the following results for the month of November: $$\begin{array} { l r }
\text { Sales (10,000 units) } & \$ 600,000 \
\text { Variable costs } & 420,000 \
\text { Contribution margin } & 180,000 \
\text { Fixed costs } & 110,000 \
\text { Net income } & \$ 70,000
\end{array}$$ Management is considering the following independent courses of action to increase net income.
1. Increase selling price by 5% with no change in total variable costs.
2. Reduce variable costs to 66 % of sales.
3. Reduce fixed costs by $10000.
Instructions
If maximizing net income is the objective which is the best course of action?

Question

Henderson Farms reports the following results for the month of November: $$\begin{array} { l r } 
\text { Sales (10,000 units) } & \$ 600,000 \
\text { Variable costs } & 420,000 \
\text { Contribution margin } & 180,000 \
\text { Fixed costs } & 110,000 \
\text { Net income } & \$ 70,000
\end{array}$$ Management is considering the following independent courses of action to increase net income.
1. Increase selling price by 5% with no change in total variable costs.
2. Reduce variable costs to 66  % of sales.
3. Reduce fixed costs by $10000.
Instructions
If maximizing net income is the objective which is the best course of action?

Quizplus · Accepted Answer

The Answer of Henderson Farms reports the following results for the month of November: $$\begin{array} { l r } 
\text { Sales (10,000 units) } & \$ 600,000 \
\text { Variable costs } & 420,000 \
\text { Contribution margin } & 180,000 \
\text { Fixed costs } & 110,000 \
\text { Net income } & \$ 70,000
\end{array}$$ Management is considering the following independent courses of action to increase net income.
1. Increase selling price by 5% with no change in total variable costs.
2. Reduce variable costs to 66  % of sales.
3. Reduce fixed costs by $10000.
Instructions
If maximizing net income is the objective which is the best course of action?

Henderson Farms Reports the Following Results for the Month of November