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Moran Company reports the following operating results for the month of August: sales $325,000 (units 5,000); variable costs $227,500; and fixed costs $68,900. Management is
Moran Company reports the following operating results for the month of August: sales $325,000 (units 5,000); variable costs $227,500; and fixed costs $68,900. Management is considering the following independent courses of action to increase operating income:
1. | Increase the selling price by 10% with no change in total variable costs. | |
2. | Reduce variable costs to 65% of sales. | |
3. | Reduce fixed costs by $18,400. |
Calculate the operating income that would be earned under each alternative.
Operating income | ||
Alternative 1 | $ | |
Alternative 2 | $ | |
Alternative 3 | $ |
Which course of action will produce the highest operating income?
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