Data concerning Marchman Corporation\'s single product appear below: The company
ID: 2460038 • Letter: D
Question
Data concerning Marchman Corporation's single product appear below:
The company is currently selling 4,000 units per month. Fixed expenses are $166,000 per month. Consider each of the following questions independently.
This question is to be considered independently of all other questions relating to Marchman Corporation. Refer to the original data when answering this 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 $8 per unit. In exchange, the sales staff would accept a decrease in their salaries of $27,000 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 100 units. What should be the overall effect on the company's monthly net operating income of this change?
options:
decrease of $1,000
decrease of $55,000
increase of $26,200
increase of $191,000
Per Unit Percent of Sales Selling price $120 100% Variable expenses 72 60% Contribution margin $48 40%Explanation / Answer
Answer is Decrease in $ 1000 Explanation: Before After Commission Commission Sales units 4000 4100 Sales revenue 480000 492000 Less: variable cost Variable expense @ 72 288000 295200 Commission @ 8 per unit 32800 Contribution margin 192000 164000 Less: Fixed expense Before 166000 After (166,000-27,000) 139000 Net Income 26000 25000 Decrease in Net income after introduction: - $1,000
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