Question

TB Problem Qu. 5-234 Data concerning Wislocki ... Data concerning Wislocki Corporation's single product appear below: Selling price Variable expenses Contribution margin Per Unit $ 185 37 Percent of Sales 100% 20% 80% $ 148 Fixed expenses are $1,049,000 per month. The company is currently selling 9,500 units per month. Required: The marketing manager would like to introduce sales commissions as an Incentive for the sales staff. The marketing manager has proposed a commission of $11 per unit. In exchange, the sales staff would accept an overall decrease in their salaries of $105,000 per month. The marketing manager predicts that Introducing this sales Incentive would increase monthly sales by 450 units. What should be the overall effect on the company's monthly net operating Income of this change? Change in net operating income

Answer 1

The introduction of sales commissions at Wislocki Corporation would increase net operating income by $166,650 per month, calculated by the increase in contribution margin and the decrease in fixed expenses due to lowered salaries.

Step-by-step explanation:

To determine the overall effect on the company's monthly net operating income of introducing sales commissions at Wislocki Corporation, one needs to calculate the change in contribution margin and the change in fixed expenses. The introduction of the sales commission would increase variable expenses by $11 per unit, but fixed expenses would decrease by $105,000 due to the reduction in salaries.

The additional 450 units sold at a contribution margin of $148 per unit would add $66,600 to the contribution margin ($148 per unit * 450 units). However, the additional variable costs due to the $11 commission per unit would be $4,950 ($11 per unit * 450 units). The net increase in contribution margin is therefore $61,650 ($66,600 - $4,950).

With the decrease in fixed expenses of $105,000, the total increase in net operating income would be $166,650 ($61,650 + $105,000). Therefore, the introduction of the sales commission would increase Wislocki Corporation's net operating income by $166,650 per month.