1 E6.3 Compute net income under different alternatives 2 E 3 Barnes Company reports the following operating results for the month of August: sales 4 $325,000 (units 5,000); variable costs $210,000, and fixed costs $75,000. 5 Management is considering the following independent courses of action to increase a. Increase selling price by 10% with no change in total variable costs or sales volume. 6 7 8 9 b. Reduce variable costs to 58% of sales. 10 C. 11 12 Reduce fixed costs by $15,000. Instructions 13 Compute the net income to be earned under each independent alternative. Which 14 course of action will produce the highest net income? 15 16 NOTE: Enter a formula, a cell reference, or a value (if you are unable to reference a 17 cell), into the yellow shaded input cells. 24 26 27 18 19 20 21 a. 30 31 b. 34 36 37 C. 39 40 41 42 43 222322222385233385833 29 Current selling price New selling price Total sales Less: variable costs Contribution margin Less: fixed costs Net income Total sales Less: variable costs Contribution margin Less fixed costs Net income Total sales Less: variable costs Contribution margin Less: fixed costs Net income. 1 E6.1 Compute break-even point and margin at safety 2 3 The Soma Inn is trying to determine its break-even point. The Inn has 75 rooms that are rented at $60 a night. Operating costs are as follows. 4 5 6 7 8 9 10 11 12 13 14 a. Salaries Utilities $10,600 2,400 per month per month Depreciation 1,500 per month Maintenance 800 per month Maid service 8 per room Other costs 34 per room 15 16 17 18 19 Instructions Determine the inn's break-even point in (1) number of rented rooms per month and (2) sales dollars. b. If the inn plans on renting an average of 50 rooms per day (assuming a 30-day month), what is (1) the monthly margin of safety in dollars and (2) the margin of safety ratio? 20 NOTE: Enter a formula, a cell reference, or a value (if you are unable to reference a celll. into the vellow shaded input cells. 21 22 23 24 25 26 27 28 29 30 31 32 33 34 a. (1) Breakeven point in rooms 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 b. 50 51 52 53 54 55 56 57 58 Rental per room Variable cost per room Contribution margin per room Fixed costs Contribution margin per room Break-even point in rooms (2) Break-even point in dollars Contribution margin per room Rental per room Contribution margin ratio Break-even point in rooms Rental per room Break-even point in dollars OR Fixed cost Contribution margin ratio Break-even point in dollars (1) Margin of safety in dollars Expected rental revenues Break-even sales Margin of safety in dollars (21 Marain of safeturatio Margin of safety in dollars Expected rental revenues Margin of safety ratio