Question

The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of $13 per unit. In exchange, the sales staff would accept an overall decrease in their salaries of $107,000 per month. The marketing manager predicts that introducing this sales incentive would increase monthly sales by 360 units. What should be the overall effect on the company's monthly net operating income of this change?

Answer 1

Answer:

$17,760 increase

Explanation:

current sales = 9,800 units ⇒ projected sales = 10,160 units

current fixed expenses = $1,052,000 ⇒ projected fixed expenses = $945,000

current variable expenses = $51 per unit ⇒ projected variable expenses = $64 per unit

                                         current income                  projected income

                                         statement                           statement

total revenue                   $1,666,000                         $1,727,200

variable expenses             $499,800                           $650,240

fixed expenses                $1,052,000                          $945,000

operating income                $114,200                            $131,960

change in operating income = $131,960 - $114,200 = $17,760