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Evaluating Two Alternatives to Raise Net Income

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Company reports the following operating results for the month of August: Sales $350,000 (units 5,000); variable costs $210,000; and fixed costs $90,000. 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 55% of sales.

Compute the net income to be earned under each alternative.

Which course of action will produce the highest net income?

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https://brainmass.com/math/basic-algebra/evaluating-two-alternatives-to-raise-net-income-453661

Solution Preview

Current:
Sales = 350,000
Total Costs = 210,000 + 90,000 = 300,000
Net income = 350,000 - 300,000 = ...

Solution Summary

This solution uses algebra to calculate which of two alternatives will produce the higher net income.

$2.19