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Cottonwood company

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Cottonwood Company reports the following operating results for the month of
August: sales $400,000 (units 5,000); variable costs $210,000; and fixed costs $90,000. Management
is considering the following independent courses of action to increase net income.

1. Increase selling price by 10% with no change in total variable costs or units sold.
2. Reduce variable costs to 45% of sales.

Compute the net income to be earned under each alternative. Which course of action will
produce the highest net income?

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