Data concerning Ulwelling Corporation\'s single product appear below: Per Unit P
ID: 2340159 • Letter: D
Question
Data concerning Ulwelling Corporation's single product appear below:
Per Unit Percent of Sales Selling price $ 180 100 %
Variable expenses 45 25 %
Contribution margin $ 135 75 %
Fixed expenses are $1,048,000 per month.
The company is currently selling 9,400 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 $12 per unit. In exchange, the sales staff would accept an overall decrease in their salaries of $106,000 per month. The marketing manager predicts that introducing this sales incentive would increase monthly sales by 440 units.
Required: What should be the overall effect on the company's monthly net operating income of this change? (Negative amount should be indicated by a minus sign.)
Change in Net Operating Income:
Explanation / Answer
Computations Particulars Existing =9400 Units Proposed =9840 Units Change Sales Revenue @ $180 $ 1,692,000 $ 1,771,200 $ 79,200 Variable Costs Variable Costs @ $45 $ 423,000 $ 442,800 $ 19,800 Sales Commissions @$12 $ - $ 118,080 $ 118,080 Total Variable Costs $ 423,000 $ 560,880 $ 137,880 Contribution = Sales-Variable Costs $ 1,269,000 $ 1,210,320 $ (58,680) Fixed Costs $ 1,048,000 $ 942,000 $(106,000) Net Operating Income = Contribution - Fixed Cost $ 221,000 $ 268,320 $ 47,320 Change in Net Operating Income $ 47,320
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