ThomasT produces and sells a vacuums: Per unit % Selling price 180 100% Variable

Question

ThomasT produces and sells a vacuums:

                          Per unit           %

Selling price                 180                 100%

Variable expense         54                    30%

Contribution margin    126                  70%

Fixed expenses are $505,000 per month. The company is currently selling 5,000 units per month.

Tommy, the marking manager would like to introduce sales commissions as an incentive for his sales staff. Tommy has proposed a commission of $16 per unit. In exchange, the sales staff would accept an overall decrease in their salaries of $65,000 per month. Sales staff salaries expenses are considered fixed expenses. Tommy 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?  

Explanation / Answer

Calculate effect

Net income decrease by -4000

Present Proposed Sales 5000*180 = 900000 5100*180 = 918000 Variable cost 5000*54 = 270000 5100*70 = 357000 Contribution margin 630000 561000 Fixed cost 505000 440000 Net income 125000 121000

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.