Question

Goldin Corporation currently pays its salesperson a flat salary of $5,000 per month and is considering paying $20 per unit instead. Sales are currently 200 units per month. Goldin believes the compensation change will increase unit sales by 50%. The current contribution margin is $80 per unit. If the change is implemented, net operating income will ______.

Answer 1

Increase by $7,000

Step-by-step explanation:

Calculation to determine the operating income

First step

Current income=($80 x 200) - $5,000

Current income= $11,000

With the change= ($80 - $20) x 200 x 150%

With the change = $18,000

Now let determine the net operating income

Operating income = $18,000-$11,00

Operating income= $7,000 per month

Therefore If the change is implemented, net operating income will INCREASE BY $7,000