Question

Bogart Company is considering two alternatives. Alternative A will have revenues of $160,000 and costs of $100,000. Alternative B will have revenues of $180,000 and costs of $125,000. Compare Alternative A to Alternative B showing incremental revenues, costs, and net income.

Answer 1

Answer:

Alternative A has lower incremental revenue but it's lower incremental costs makes the net income higher than of Alternative B.

Explanation:

Alternative A

The net income is computed with the formula as:

Net Income = Incremental Revenue - Incremental Cost

= $160,000 - $100,000

= $60,000

Alternative B

The net income is computed with the formula as:

Net Income = Incremental Revenue - Incremental Cost

= $180,000 - $125,000

= $55,000

Alternative A has lower incremental revenue but it's lower incremental costs makes the net income higher than of Alternative B.

Answer 2

Assuming the company is considering two alternatives.  Alternative A to Alternative B  net income is: $60,000; $55,000.

Net income

Alternative A Alternative B Net Income Increase (Decrease)

Revenues $ 160,000 $100,000 $60,000

($160,000-$100,00)

Costs               $180,000 125,000  $55,000

($180,000-$125,000)

Inconclusion Alternative A to Alternative B  net income is: $60,000; $55,000.

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