Exercise 18-15

Cottonwood Company reports the following operating results for the month of August: sales $402,400 (units 5,030); variable costs $217,000; and fixed costs $98,360. Management is considering the following independent courses of action to increase net income.

1. Increase selling price by 12% with no change in total variable costs or units sold.

2. Reduce variable costs to 57% of sales.

Compute the net income to be earned under each alternative. (Round intermediate calculations to 2 decimal places, e.g. 2.25 and final answers to o decimal places, e.g. 12,125.)

1. Net Income $

2. Net Income $

Which course of action will produce the highest net income?