Larue Company Reports the Following Operating Results for the Month

question 204

Essay

Larue Company reports the following operating results for the month of August: Sales $300,000 (units 5,000); variable costs $210,000; and fixed costs $70,000. Management is considering the following independent courses of action to increase net income.
1. Increase selling price by 10% with no change in total variable costs.
2. Reduce variable costs to 65% of sales.
3. Reduce fixed costs by $10,000.
Instructions
Compute the net income to be earned under each alternative. Which course of action will produce the highest net income?

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Definitions:

Tax Rate

The proportion of income or value of goods taxed by the government, applicable to individuals, corporations, and transactions.

Operating Cash Flow

The cash generated from the normal operating activities of a business, reflecting the amount of cash that a company can produce through its normal business operations.

Capital Cost Allowance

A tax deduction in many tax systems for businesses, allowing them to depreciate the cost of assets over time.

Project Life

The duration from the initiation to the closure of a project, encapsulating all phases of project management.