Spark Company has the following data for the month of April:
Sales (10,000 units)
$600,000
Variable costs
420,000
Contribution Margin
180,000
Fixed costs
110,000
Net income
70,000
Management is considering the following independent courses of action to increase net
income.
1. Increase selling price by 6% with no change in total variable costs.
2. Reduce variable costs to 65% of sales.
3. Reduce fixed costs by $20,000.
Instructions
Which is the best course of action if the company wants to earn as much net income as possible? Be sure to show all
calculations for each alternative to prove your choice!