Exercise 20-3

Barnes Company reports the following operating results for the month of August: sales $305,000(units 5,000); variable costs $220,000; and fixed costs $70,300. Management is considering the following independent courses of action to increase net income.

Compute the net income to be earned under each alternative.

1. Increase selling price by 10% with no change in total variable costs or sales volume.

Net income

$

2. Reduce variable costs to60% of sales.

Net income

$

3. Reduce fixed costs by $21,000.

Net income

$

Which course of action will produce the highest net income?