Billings Company has developed the following budgeted income statement: Sales Revenue (2,300 units * $14 sales price) $ 32,200 Total Variable Expenses (2,300 * $6 per unit) (13,800) Contribution Margin 18,400 Fixed Expenses (10,000) Net Income $ 8,400 The Company is experimenting with new engineering techniques and believes it can reduce variable cost to $4.50 per unit and significantly improve the product. The innovations would double fixed costs but the company expects to be able to increase sales to 3,500 units. If this strategy is pursued the company's budgeted net income will:

Question

Business

Izaiah Paul

22 November, 08:12

Billings Company has developed the following budgeted income statement: Sales Revenue (2,300 units * $14 sales price) $ 32,200 Total Variable Expenses (2,300 * $6 per unit) (13,800) Contribution Margin 18,400 Fixed Expenses (10,000) Net Income $ 8,400 The Company is experimenting with new engineering techniques and believes it can reduce variable cost to $4.50 per unit and significantly improve the product. The innovations would double fixed costs but the company expects to be able to increase sales to 3,500 units. If this strategy is pursued the company's budgeted net income will:

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Ada Conway · Answer 1

The income will increase to 13,250 dollars.

Explanation:

New scenario:

Sales 3,500 units x $14 sales price = 49, 000

Variable expense 3,500 x $4.5 per unit = (15, 750)

Contribution Margin 33, 250

Fixed Expense: 10,000 x 2 (they doubled) = (20,000)

Net Income: 13, 250

We have to recalculate the complete income statement as all the variables are affected in this strategy.