Erin Company reports the following operating results for the month of August: Sales $350,000 (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.
2. Reduce variable costs to 55% of sales.
3. Reduce fixed costs by $10,000.
Compute the net income to be earned under each alternative. Which course of action will produce the highest net income?