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Vera Bradley Inc. reports the following results for the month of June:

Sales Revenue (20,000 units) $1,200,000

Variable costs 800,000

Fixed costs 300,000

Net income $ 100,000

Management of Vera Bradley has been assessing possible course of action and have developed the following independent scenarios to pursue:

1. Reduce variable costs to 63% of sales.

2. Reduce fixed costs by $30,000.

3. Increase selling price by 4% with no change in total variable costs.

Instructions

Vera Bradley would like to select the scenario that would result in the

highest net income. Which scenario would you recommend and why? You must

show computations for each one and then state your conclusion.