Below is a variable costing income statement for Wilner Glass Company, a maker o

Question

Below is a variable costing income statement for Wilner Glass Company, a maker of bottles for the beverage industry. For the coming year, the company is considering hiring 3 additional sales representatives at $81,100 each for base salary plus 4 percent of their sales for commissions. The company anticipates that each sales representative will generate $886,700 of incremental sales.

Calculate the impact on profit of the proposed hiring decision.

Should the company hire the 3 additional sales representatives?

Wilner Glass Company
Income Statement
For the Year Ending December 31, 2014 Sales $19,950,000 Less: Variable cost of goods sold $7,780,500 Variable selling expense 3,790,500 11,571,000 Contribution margin 8,379,000 Less: Fixed production expense 2,505,800 Fixed selling expense 1,781,500 Fixed administrative expense 2,834,600 7,121,900 Net income $1,257,100

Explanation / Answer

Current Contributiom margin ratio = 8,379,000 / 19,950,000 = 42%

Statement of Additional profit by adding 3 sales representatives

b) The Company must/should hire the 3 additional sales representatives as it will increase the profits of Company by $ 554,730

Particulars Calculation Amount Increase in sales $ 886,700 X 3 $ 26,60,100 Contribution margin On increased sale $ 26,60,100 X 42% $ 1,117,242 Less : increased Expenses Fixed Salary of 3 Represntatives $ 81,100 X 3 $ 243,300 Sales commision $ 26,60,100 X 4% X 3 $ 319,212 Net increase in profit of company $ 554,730

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