The following Contribution Format Income Statement for Jones Co. pertains to questions 6 and 7:

Sales $540,000

Variable Costs 189,000

Contribution Margin 351,000

Fixed Costs 260,000

Net Income $ 91,000

6. The president of Jones Co. believes that a 5% reduction in the selling price would increase sales volume by 25%. If both of these changes occur, what would be the effect on Jones net income?

a. net income would increase by $26,000.

b. net income would increase by $54,000.

c. net income would decrease by $6,500.

d. net income would decrease by $89,250.

7. Refer to the original Income Statement above. What must Jones sales be to break even (in dollars)?

a. $504,000

b. $485,000

c. $400,000

d. $449,000