Question

Data concerning Wislocki Corporation's single product appear below: Per Unit Percent of Sales Selling price $ 180 100 % Variable expenses 36 20 % Contribution margin $ 144 80 % Fixed expenses are $1,044,000 per month. The company is currently selling 9,000 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 $14 per unit. In exchange, the sales staff would accept an overall decrease in their salaries of $110,000 per month. The marketing manager predicts that introducing this sales incentive would increase monthly sales by 400 units. What should be the overall effect on the company's monthly net operating income of this change

Answer 1

$36,000 increase

Step-by-step explanation:

The computation of the overall effect on the company's monthly net operating income of this change is shown below:

Particulars Current Proposed

Unit sales 9,000 units 9,400 units

Sales $1,620,000 $1,692,000

(9,000 units × $180) (9,400 units × $180)

less: variable cost -$324,000 -$470,000

(9,000 units × $36) (9,400 units × $50)

Contribution margin $1,296,000 $1,222,000

Less: fixed cost -$1,044,000 -$934,000

Net operating income $252,000 $288,000

Hence, there is an increase in net operating income by

= $288,000 - $252,000

= $36,000