Exercise 18-15

Yams Company reports the following operating results for the month of August: sales $390,000 (units 5,000), variable costs $256,000, and fixed costs $91,000. Management is considering the following independent courses of action to increase net income.

1. Increase selling price by 14% 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 answer to 0 decimal places, e.g. 12,125.)

1. Net Income $ 2. Net Income $

Which course of action will produce the higher net income? Alternative 1 Alternative 2