Question

Marathon Company makes and sells a single product. The current selling price is $19 per unit. Variable expenses are $11.4 per unit, and fixed expenses total $55,860 per month. (Unless otherwise stated, consider each requirement separately.) Management is considering a change in the sales force compensation plan. Currently each of the firm's two salespeople is paid a salary of $2,500 per month. Calculate the monthly operating income (or loss) that would result from changing the compensation plan to a salary of $400 per month, plus a commission of $0.9 per unit, assuming a sales volume of 7,350 units per month.

Answer 1

To calculate the monthly operating income under the new sales compensation plan, deduct the total salary plus commission of both salespeople, total variable expenses, and fixed expenses from the total revenue, assuming the sale of 7,350 units per month.

Step-by-step explanation:

The question revolves around calculating the monthly operating income for Marathon Company under a new compensation plan for its sales force. Under the new plan, each of the two salespeople would get a reduced salary of $400 per month plus a commission of $0.9 per unit sold, assuming sales volume stands at 7,350 units per month.

First, we calculate the total salary and commission for both salespeople which is ($400 salary + $0.9 commission × 7,350 units) × 2 salespeople. Next, we subtract the total variable expenses ($11.4 per unit × 7,350 units) and the fixed expenses (excluding sales salaries, since we calculated them separately under the new compensation plan) from the total revenue ($19 per unit × 7,350 units) to determine the monthly operating income.