Question

Oldin 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 25%. The current contribution margin is $80 per unit. If the change is implemented, net operating income will ______. Multiple choice question. Decrease by $4,000 increase by $4,000 increase by $1,000 decrease by $1,000

Answer 1

Increase by $4,000

Step-by-step explanation:

Increase in sales = 200 x 25% = 50

Total sales after change = 200+50 = 250

New Contribution = $80 x 250 = $20,000

Old Contribution = $80 x 200 = $16,000

change in contribution $20,000 - $16,000 = $4,000