Birchfields management is looking at longer term solutions to improve net income. One of the options they have reviewed will increase fixed expenses by $27,000 while reducing variable expenses by $2.00 per unit. Management feels that with these changes the price of the product could be reduced by $1.00 per unit. The decrease in price will then result in an increase in unit sales of 5%. Compute the net income to be earned under this alternative. Do you recommend this option? Why or why not? (Round per unit calculations to 2 decimal places, e.g. 15.25 and final answers to 0 decimal places, e.g. 125.)

Net income? $

This option is ... (recommend/ not recommended) as it ... (increase/ decrease) net income.

Birchfield Company reports the following operating results for the month of February: sales $936,000 (units 15,600); variable costs $453,960; and fixed costs $194,400. Management is considering the following independent courses of action to increase net income. 1. Increase selling price by 2.6% with no change in total variable costs or units sold. Reduce variable costs to 44.80% of sales. 2. (a) Compute the net income to be earned under each alternative. (Round per unit calculations to 2 decimal places, eg. 15.25 and final answers to 0 decimal places, e.g. 125.) Alternative #1 Alternative #2 Net Income $ $ Which course of action will produce the highest net income? will produce the highest net income