Durand Music reports the following operating results for the month of August: sales €400,000 (units 5,000), variable costs €240,000, 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 55% of sales.

Instructions

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