E6-3 Compute net income under different alternatives
Barnes Company reports the following operating results for the month of August: sales $325,000
(units 5,000); variable costs $210,000; and fixed costs $75,000. 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 sales volume.
2.	Reduce variable costs to 58% of sales.
3.	Reduce fixed costs by $15,000.
Instructions
Compute the net income to be earned under each alternative. Which course of action will produce the
highest net income?
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" .
1.	Increase selling price by 10% with no change in total variable costs or sales volume.
	Current selling price				?
	New selling price				?
	(Round to nearest cent)
	Total sales				?
	Less: variable costs				?
	Contribution margin				?
	Less: fixed costs				Value
	Net income				?
2.	Reduce variable costs to 58% of sales.
	Total Sales				Value
	Less: variable costs				Value
	Contribution margin				?
	Less: fixed costs				Value
	Net income				?
3.	Reduce fixed costs by $15,000.
	Total Sales				Value
	Less: variable costs				Value
	Contribution margin				?
	Less: fixed costs				Value
	Net income				?
After you have completed E6-3, consider the following additional questions.
1.	Assume that unit selling price increased 5% with no change in total variable costs or sales volume.
2.	Assume variable costs decreased to 53% of sales.
3.	Assume that fixed costs increased by $20,000.
	Which course of action will produce the highest net income?