Smart Products has the following information available for the month of March: Sales (4,000 units)$40,000 Variable costs$18,000 Fixed costs$ 5,324 Net income$16,676The company's manager is considering several options to increase net income. If variable costs per unit are decreased by 15 cents and fixed costs are decreased to $5,000, what will net income increase to?Question 2Select one:a.$17,600b.$17,000c.$17,276d.$55,575e.None of these is correct
Question
Smart Products has the following information available for the month of March: Sales (4,000 units)18,000 Fixed costs16,676The company's manager is considering several options to increase net income. If variable costs per unit are decreased by 15 cents and fixed costs are decreased to 17,600b.17,276d.$55,575e.None of these is correct
Solution
First, let's calculate the variable cost per unit:
Variable costs = $18,000 Number of units = 4,000
Variable cost per unit = Variable costs / Number of units = 4.5 per unit
The manager is considering decreasing this by 15 cents, so the new variable cost per unit would be $4.35.
Next, let's calculate the total variable costs after the decrease:
Total variable costs = Variable cost per unit * Number of units = 17,400
The fixed costs are also being decreased to $5,000. So, the total costs (variable + fixed) would be:
Total costs = Total variable costs + Fixed costs = 5,000 = $22,400
The sales remain the same at $40,000. So, the new net income would be:
Net income = Sales - Total costs = 22,400 = $17,600
So, the answer is a. $17,600.
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