Question

Fixed expenses are $991,000 per month. The company is currently selling 8,000 units per month. 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 a decrease in their salaries of $74,000 per month. (This is the company's savings for the entire sales staff.) The marketing manager predicts that introducing this sales incentive would increase monthly sales by 200 units. What should be the overall effect on the company's monthly net operating income of this change

Answer 1

There is a decrease in monthly net operating income of $16,000

Step-by-step explanation:

Consider Incremental Revenues and Costs as a result of the introduction of the sales commissions.

Sales Commission ( 8,200 units × $11) ($90,200)

Decrease in Monthly Salary $74,000

Net Income ($16,000)

There is a decrease in monthly net operating income of $16,000