Data concerning Ulwelling Corporation\'s single product appear below: Fixed expe

Question

Data concerning Ulwelling Corporation's single product appear below:

Fixed expenses are $1,052,000 per month. The company is currently selling 9,800 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 $10 per unit. In exchange, the sales staff would accept an overall decrease in their salaries of $102,000 per month. The marketing manager predicts that introducing this sales incentive would increase monthly sales by 480 units.

What should be the overall effect on the company's monthly net operating income of this change?

Data concerning Ulwelling Corporation's single product appear below:

Explanation / Answer

                                                              Existing     Proposed

Units sold                                                  9800         10280

Sales   $170 per unit                         $16,66,000      $17,47,600

Variable expenses $51 per unit          $ 4,99,800       $ 5,24,280

Sales comission $10 per unit                   $0              $ 1,02,800

Contribution margin $119 per unit      $11,66,200      $11,20,520

Fixed expenses                                $10,52,000        $9,50,000 (reduction of $102000 from salaries)

Net operating Income                         $1,14,200       $ 1,70,520

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