Cottonwood Company reports the following operating results for the month of August: sales $400,000 (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 or units sold.

2 Reduce variable costs to 45% of sales.

Instructions Compute the net income to be earned under each alternative. Which course of action will produce the highest net income?

AppendixLO1