Question

The marketing manager would like to introduce sales sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of $10.00 per unit. In exchange, the sales staff would accept an overall decrease in their salaries of $101,000 per month. The marketing manager predicts that introducing this sales incentive would increase monthly sales by 300 units. What should be the overall effect on the company's monthly net operating income of this change?

Fixed expenses are $1,055,000 per month. The company is currently selling 9,700 units per month.
Selling Price Per Unit $140 Percent of Sales 100%
Variable expense = 28.00 Percent of Sales 20%
Contribution Margin $112 Percent of Sales 80%

Answer 1

34600

Step-by-step explanation:

The calculation is given below:

Particulars Present Proposed

Sales 9700 × 140 = 1358000 10000 × 140 = 1400000

Variable cost 9700 × 28 = 271600 10000 × 38 = 380000

Contribution margin 1086400 1020000

Fixed cost 1055000 954000

Operating income 31400 66000

So, Overall net operating income increase by

= (66000-31400)

= 34600