Data concerning Ulwelling Corporation\'s single product appear below: Per Unit P

Question

Data concerning Ulwelling Corporation's single product appear below: Per Unit Percent of Sales Selling price $ 180 100% Variable expenses 36 20% Contribution margin $ 144 80% Fixed expenses are $1,044,000 per month. The company is currently selling 9,000 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 $14 per unit. In exchange, the sales staff would accept an overall decrease in their salaries of $110,000 per month. The marketing manager predicts that introducing this sales incentive would increase monthly sales by 400 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.) Show steps!

Explanation / Answer

Answer to the Question

overall effect on the company's monthly net operating income of this change will be $36,000.

Particulars Existing Forecasted Change No of unit sold                       9,000 9400 Per unt Selling price                          180 180 Total Sales                 1,620,000               1,692,000       72,000 Variable cost                   324,000                  338,400       14,400 Increase in Commission                            -                    131,600     131,600 Reduction in Salaries                            -                   (110,000)    (110,000) Contribution                 1,296,000               1,332,000       36,000 Fixed Cost                 1,044,000               1,044,000             -   Net Income                   252,000                  288,000       36,000

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